At a consumer's utility maximizing combination of two goods, the marginal rate of substitution equals:
Correct answer: B. The ratio of the goods' prices
- A. The ratio of total utilities
- B. The ratio of the goods' prices
- C. The ratio of total incomes
- D. The ratio of average costs
Explanation
Consumer equilibrium requires the marginal rate of substitution to equal the price ratio, such as Px divided by Py. This condition ensures that the consumer's willingness to substitute matches the market trade-off.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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