Arrange the following concept emerges in context of consumer equilibrium.
(A) Transfer his expenditure from Good Y to Good X.
(B) Sacrifice more of Good Y to gain Good X.
(C) Till, Marginal Rate of Substitution (MRSxy) = Market Rate of Exchnage.
(D) Suppose, Marginal Rate of Substitution (MRSxy) > Market Rate of Exchnage.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (D), (B), (A), (C)
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(D) Suppose, Marginal Rate of Substitution (MRSxy) > Market Rate of Exchange. This means the consumer is willing to give up more of Good Y than the market requires to get one unit of Good X.
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(B) Therefore, the consumer will sacrifice more of Good Y to gain Good X. The consumer starts adjusting their consumption by buying more of Good X and less of Good Y.
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(A) The consumer will transfer expenditure from Good Y to Good X until balance is achieved.
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(C) The process continues till MRSxy = Market Rate of Exchange, which is the condition for consumer equilibrium.