Question : Statement 1: The slope of the budget line represents the relative price of two goods.
Statement 2: The consumer achieves equilibrium when the marginal rate of substitution is equal to the relative price of the goods.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Correct Answer: Both statement 1 and statement 2 are true.
Solution : The correct answer is (c) Option C: Both statement 1 and statement 2 are true.
Statement 1 is true. The slope of the budget line represents the relative price of two goods. It indicates the rate at which the consumer can trade one good for another in the market, given the prices of the goods.
Statement 2 is also true. The consumer achieves equilibrium when the marginal rate of substitution (MRS) is equal to the relative price of the goods. The MRS measures the rate at which the consumer is willing to substitute one good for another while remaining on the same level of utility. At equilibrium, the consumer maximizes their utility by allocating their budget in a way that the MRS equals the relative price of the goods.
Question : Statement 1: The consumer achieves equilibrium when the marginal utility per dollar spent is equal for all goods.
Statement 2: At equilibrium, the consumer maximizes their total utility within the constraints of their budget.
Question : Statement 1: Consumer equilibrium can occur when the marginal rate of substitution is equal to the relative price of goods.
Statement 2: The marginal rate of substitution measures the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction.
Question : Statement 1: A consumer achieves equilibrium by consuming equal quantities of all goods.
Statement 2: The concept of consumer equilibrium assumes that the consumer's goal is to maximize their total utility.
Question : Assertion: The slope of the budget line represents the relative price of two goods in the consumer's consumption bundle.
Reason: The consumer chooses a consumption bundle where the marginal rate of substitution equals the relative price of the goods.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Question : Statement 1: The consumer's equilibrium is achieved when the budget line is steeper than the highest attainable indifference curve.
Statement 2: The consumer's equilibrium is determined by the intersection of the budget line and the highest attainable indifference curve.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile