At the point of consumer equilibrium the slope of the budget line is equal to the:
A)market rate of substitution.
B)indifference curve.
C)marginal rate of substitution.
D)consumer preference.

Question

Quizplus · Accepted Answer

The point of consumer equilibrium represents the point where the consumer obtains the maximum satisfaction by allocating the limited budget among the available goods and services. At this point, the consumer is spending the entire budget and the slope of the budget line represents the opportunity cost of one good in terms of the other. The consumer is indifferent between any combination of goods on the same indifference curve, however, the slope of the indifference curve represents the marginal rate of substitution (MRS), which is the amount of one good that the consumer is willing to give up to obtain an additional unit of the other. Therefore, at the point of consumer equilibrium, the slope of the budget line must be equal to the marginal rate of substitution (MRS) of the two goods.

At the Point of Consumer Equilibrium the Slope of the Budget