Three of the following refer to the same thing. Which one is the odd one out?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Absolute value of the slope of the budget line
The MRS, the absolute slope of the indifference curve and the rate at which she is willing to substitute are one idea. The absolute slope of the budget line is the rate at which she is able to substitute in the market.
The two rates become equal only at the consumer’s optimum.
NCERT (2026-27): “Equality of the Marginal Rate of Substitution and the Ratio of the Prices 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. …” |