[amp_mcq option1=”$$MR{S_{xy}} = \frac{{{P_x}}}{{{P_y}}}$$” option2=”$$MR{S_{xy}} > \frac{{{P_x}}}{{{P_y}}}$$” option3=”$$MR{S_{xy}} < \frac{{{P_x}}}{{{P_y}}}$$" option4="$$MR{S_{xy}} = {P_x}{P_y}$$" correct="option1"]
The correct answer is A. $$MR{S_{xy}} = \frac{{{P_x}}}{{{P_y}}}$$
The marginal rate of substitution (MRS) is the rate at which a consumer is willing to give up one good in exchange for another. The price ratio is the relative price of the two goods. A consumer attains equilibrium at a point on the indifference curve where the MRS is equal to the price ratio. This is because at this point, the consumer is indifferent between consuming more of one good and less of the other.
Option B is incorrect because if the MRS is greater than the price ratio, the consumer can get more utility by consuming more of the good with the lower marginal utility. Option C is incorrect because if the MRS is less than the price ratio, the consumer can get more utility by consuming more of the good with the higher marginal utility. Option D is incorrect because the MRS is not equal to the product of the prices of the two goods.