Question : A consumer will not be in equilibrium when according to the indifference curve and price line.
Option 1: The price of retroactive items and the marginal utility ratio is the same.
Option 2: The ratio of marginal utilities of the two goods is equal to the ratio of their respective prices.
Option 3: The prices of the two items are equal, as is the marginal rate of substitution.
Option 4: Substitution's marginal rate is declining.
Correct Answer: Substitution's marginal rate is declining.
Solution : The consumer’s equilibrium under the indifference curve: (i) MRSXY = Ratio of prices or PX/PY. (ii) Marginal rate of substitution is equal to the prices of the two goods. (iii) The price of retroactive items and the marginal utility ratio is the same. Hence d is not correct answer.
Question : If a consumer is in equilibrium, the consumer's marginal rate of substitution (MRS) must be equal to:
Option 1: The price of X.
Option 2: The price of Y.
Option 3: The ratio of marginal utilities.
Option 4: The ratio of prices.
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