A consumer achieves equilibrium under the ordinal utility framework while purchasing Good … — JAMB UTME

A consumer achieves equilibrium under the ordinal utility framework while purchasing Good $X$ and Good $Y$ . If the market price of Good $X$ is $\text{₦}150$ and the market price of Good $Y$ is $\text{₦}50$ , calculate the Marginal Rate of Substitution of Good $X$ for Good $Y$ ( $MRS_{xy}$ ) at the equilibrium point.

Answer: 3

Answer

The Marginal Rate of Substitution of Good

X

for Good

Y

(

MRS_{xy}

) at the consumer's equilibrium point is

3

In ordinal utility theory, consumer equilibrium occurs where the budget line is tangent to the highest attainable indifference curve. At this tangency point, the slope of the indifference curve—known as the Marginal Rate of Substitution (

MRS_{xy}

)—equals the ratio of the prices of the two goods (

\frac{P_x}{P_y}

). Given

P_x = \text{₦}150

and

P_y = \text{₦}50

MRS_{xy} = \frac{150}{50} = 3

Step-by-Step Solution

State the consumer equilibrium condition under ordinal utility analysis.

MRS_{xy} = \frac{P_x}{P_y}

At the point of consumer equilibrium, the indifference curve is tangent to the budget line, meaning their slopes are equal.

Substitute the prices of Good

X

and Good

Y

to find the ratio.

MRS_{xy} = \frac{150}{50} = 3

Dividing the price of Good

X

(₦150) by the price of Good

Y

(₦50) yields the slope of the budget line.

Key Concept

Consumer Equilibrium Tangency Condition

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Topics

More questions from this topic