At the optimum,the consumer chooses consumption of the two goods so that the marginal rate of substitution equals the relative price ratio.

Question

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This is the fundamental rule of consumer optimization in a two-good economy, known as the equalization of the marginal rate of substitution (MRS) and the price ratio. The MRS is the amount of one good that a consumer is willing to give up to obtain an additional unit of the other good while maintaining the same level of satisfaction or utility. The price ratio, on the other hand, reflects the relative cost of one good in terms of the other. At the point where the MRS equals the price ratio, the consumer is balancing the satisfaction gained from consuming additional units of each good against the cost of doing so, and cannot improve their utility by changing their consumption bundle.

At the Optimum,the Consumer Chooses Consumption of the Two Goods