Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Consumer behaviour

Question:

Read the following passage and answer, question.

A consumer is a rational individual who knows, what is good and bad for him/her. So he always tries to achieve the best to get maximum satisfaction. Thus, the consumer chooses the set of bundles as per his preference which is best for him. The consumer always prefers to move to a point on the highest possible indifference curve given on the budget set. 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.

If the budget line is tangent to an indifference curve at a point, absolute value of the MRS and the Budget line are _______ at that point.

Options:

More

High

Less

Same

Correct Answer:

Same

Explanation:

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.