At the consumer's optimum, which condition holds?

MRS = 0Correct answerYour answerMRS = P₁ ÷ P₂Correct answerYour answerMRS = M ÷ P₁Correct answerYour answerP₁ = P₂Correct answerYour answer

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CorrectNot quiteAnswer B

Correct answer: B

At the tangency, the slope of the indifference curve (MRS) equals the slope of the budget line (P₁ ÷ P₂).
The rate at which the consumer is willing to swap equals the rate at which the market lets him swap.

Ten questions from Budget Line & Optimal Choice, at your own pace.

Ten questions from Budget Line & Optimal Choice, at your own pace.

Explanation