The slope of the budget constraint,when a consumer has reached optimal consumption of two goods,is equal to the
A)Marginal rate of substitution.
B)Cross-price elasticity of the two goods.
C)Total utility for the two goods.
D)Marginal rate of indifference.

Question

Quizplus · Accepted Answer

The slope of the budget constraint shows the trade-off between the two goods that the consumer can consume at a given budget. The consumer maximizes their utility by choosing the combination of goods where the marginal rate of substitution (MRS) equals the relative price of the two goods. Therefore, the slope of the budget constraint must be equal to the MRS, which measures the rate at which the consumer is willing to substitute one good for another to maintain the same level of utility.

The Slope of the Budget Constraint,when a Consumer Has Reached