At an optimal allocation of goods: one consumer will have a higher marginal rate

Question

At an optimal allocation of goods:

one consumer will have a higher marginal rate of substitution than the other.

the consumers will have equal marginal rates of substitution.

the MRS of one consumer is equal to Px/Py, and the MRS of the other consumer is equal to Py/Px.

the consumers must be receiving the same amount of utility.

one consumer will have a higher marginal rate of substitution than the other.

the consumers will have equal marginal rates of substitution.

the MRS of one consumer is equal to Px/Py, and the MRS of the other consumer is equal to Py/Px.

the consumers must be receiving the same amount of utility.

Explanation / Answer

Ans . At an optimal allocation of goods the MRS of one consumer is equal to Px/Py and MRS of other consumer is equal to Py/Px.It basically leads to Consumer Equilibrium , consumer always want to maximize their utility I.e he always want to maximize their satisfaction . Suppose there are two goods i.e good x and good Y . There is marginal rate of substitution between commodity X and commodity Y (MRSxy) must be equal to the Price ratio Between two goods Px/Py.This diagram depicts the example of consumer equilibrium I.e in order to maximize utility We will try to reach higher indifference curve From which we get given expenditure of goods and Given price of goods . The budget line IC2 will show the maximum utilty . At tangency point E the slope of price line GH and Indifference curve are equal .Their slope of indifference curve will show marginal rate of substitution of good X for good Y . The price line will indicate the price ratio of two goods Px/Py.Thus, at equilibrium point MRS of one consumer is equal to Px/Py and MRS of other consumer is equal to Py/Px.

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