If a consumer's marginal rate of substitution is greater than the relative price of the goods,the consumer is
A) at his or her best affordable point.
B) perhaps at his or her best affordable point.
C) not at his or her best affordable point and should move along his or her indifference curve to a higher budget line.
D) not at his or her best affordable point and should move along his or her budget line to a higher indifference curve.
E) More information is needed to determine if the consumer is or is not at his or her best affordable point.

Question

Quizplus · Accepted Answer

When a consumer's marginal rate of substitution (MRS) is greater than the relative price of the goods, it means the consumer values the goods being substituted more than the market does. Therefore, the consumer can increase utility by moving along the budget line to a point where the MRS equals the relative price, which corresponds to a higher indifference curve.

If a Consumer's Marginal Rate of Substitution Is Greater Than