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At the consumer's equilibrium point in indifference curve analysis, the marginal rate of substitution of X for Y equals the:
Aratio of the prices of X and Y
Bsum of the prices of X and Y
Cconsumer's total money income
Dratio of total utilities of X and Y
Answer & Solution
Correct answer: A. ratio of the prices of X and Y
1. At tangency the slope of the IC equals the slope of the budget line.
2. IC slope is $MRS_{xy} = MU_x/MU_y$ and budget-line slope is $P_x/P_y$, so $MRS_{xy} = P_x/P_y$.
3. A total-utility ratio, income, and the sum of prices do not appear in this condition, so those options are wrong.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit II "Theory of Consumer Behaviour", p.21_
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