In an indifference curve/budget line diagram, a consumer will select the combination of goods that is on the budget line and for which the
A) marginal rate of substitution between two goods is greater than the relative price of the two goods.
B) marginal rate of substitution between two goods is equal to the relative price of the two goods.
C) slope of the indifference curve is less than the relative price of the two goods.
D) slope of the indifference curve is greater than the relative price of the two goods.

Question

Quizplus · Accepted Answer

The consumer will select the combination of goods where the marginal rate of substitution (MRS) between two goods is equal to the relative price of the two goods. This condition ensures that the consumer is maximizing utility given their budget constraint.

In an Indifference Curve/budget Line Diagram, a Consumer Will Select