Suppose, a consumer consumes two goods whose MRS = 3, if price of one good is Rs 30, what can be the price of the other good for the consumer to be in equilibrium.
(A) 10
(B) 30
(C) 60
(D) 90
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (D) only
Given:
Marginal rate of substitution, MRS = 3
Price of one good = Rs 30
A consumer is in equilibrium when MRS equals the ratio of the prices of the two goods X and Y: MRS = PX / PY. Rs 30 can be the price of either good, so there are two cases.
If PX = 30: 30 / PY = 3
PY = 10
If PY = 30: PX / 30 = 3
PX = 90
A price of 30 gives a ratio of 1, and 60 gives a ratio of 2 or 1/2, so (B) and (C) do not fit.
NCERT (2026-27): “2.3 Optimal Choice of the Consumer … The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. If the budget line is tangent to an indifference curve at a point, the absolute value of the slope of the indifference curve (MRS) and that of the budget line (price ratio) are same at that point. Recall from our earlier discussion that the slope of the indifference curve is the rate at which the consumer is willing to substitute one good for the other. The slope of the budget line is the rate at which the consumer is able to substitute one good for the other in the market. At the optimum, the two rates should be the same.…” |