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JAMB Economics 2011 Question 13

Question 13

Theory of Consumer Behaviour

When a consumer is at equilibrium, the MRSxy is equal to the

  1. A.sum of the two prices
  2. B.product of the two prices
  3. C.ratio of the two prices
  4. D.difference of the two prices.
Show the answer and explanation

Answer: C (ratio of the two prices)

Explanation

At equilibrium the indifference curve touches the budget line, so their slopes are equal: MRSxy = Px/Py.