Why is the MRS = to the price ration?

Expert Solution

The Marginal Rate of Substitution (MRS) is defined as the rate at which an individual is willing to sacrifice one good in order to obtain one additional unit of the other good.

The MRS is always equal to the price ratio. Suppose there are two goods: X and Y, The MRS is equal to the price ratio (P_X/P_Y).

If MRS is greater than the price ratio then the consumer would willing to sacrifice more units of good Y in order to obtain an additional unit of good X. The consumer will purchase more units of good X than good Y. This means that the consumer values good X more than the good Y. The consumer will continue to purchase more of good X until MRS becomes equal to the price ratio.

If MRS is less than the price ratio then the consumer would be willing to sacrifice more units of good X in order to gain an additional unit of good Y. The consumer will purchase more units of good Y than good X. This means that the consumer values good Y more than the good X. The consumer will continue to purchase more units of good Y until MRS becomes equal to the price ratio.

So, the final outcome is that the MRS must always equal to the price ratio to attain equilibrium.

Rahul Sunny answered 1 year ago

Why do small firms credit ration? How does it happen?

2) In anova the f-ration is of?

2) In anova the f-ration is of? a) sample mean (M) b) sample means (M) divided by variances (SS) c) Two variances (SS) each divided by a corresponding degree of freedom (df) d) Sample variances (SS) divided by sample means (M) 3) For an independent measures research study, Cohen's d helps to describe? a) The risk type I error b) The risk for type II error c) The size of the effect between two samples means without taking into...

what are the difficulties with reporting mode for interval/ ration variables?

Which of the following is a problem (from an efficiency perspective) with ration coupons as an...

Which of the following is a problem (from an efficiency perspective) with ration coupons as an approach to allocate goods in a shortage? Group of answer choices People who value the good the most, don’t get more of it than other people The first people in line buy most of the goods The government misses out on tax revenue Prices go up

Mrs. Mendel and Mrs. Golgi had babies the same day in the same hospital. Mrs. Mendel...

Mrs. Mendel and Mrs. Golgi had babies the same day in the same hospital. Mrs. Mendel took home a baby girl, whom she named Homostasis. Mrs. Golgi took home a baby girl, whom she named Plasmodesmata. Mrs. Golgi began to suspect that her child and the Mendel baby had been switched at birth. Blood tests were done. Mr. Mendel-type B, Mrs. Mendel-type A, Mr. Golgi-type A, Mrs. Golgi-type A, Homostasis-type O, and Plasmodesmata-type B. Had a mix-up occurred ? Explain.

9. Why must the physician be careful with the amounts of medication ordered? 10. Mrs. Li...

9. Why must the physician be careful with the amounts of medication ordered? 10. Mrs. Li is curt, demanding, and disagreeable toward her daughter-in-law. Why does she act this way? 11. Explain why Mr. Li blames the airplane ride and the Western food for his heart attack. Why does he meditate and do exercises? 12. Is Mr. Li’s stoicism during dying surprising? Why do the family members refuse to discuss his health and possible death?

Mrs. Jones has a serious case of conjunctivitis and the doctor orders chloramphenicol and penicllin. Why...

Mrs. Jones has a serious case of conjunctivitis and the doctor orders chloramphenicol and penicllin. Why would the administration of both of these antibiotics be contraindicated? Explain in detail why.

How is rationing defined and what criteria are offered to ration care? Discuss and apply at...

How is rationing defined and what criteria are offered to ration care? Discuss and apply at least one of the major ethical theories to the issue and the ethical decision-making process to the issue. What do you feel the impact of the issue in the article will be on the healthcare industry? What can be done to ensure rationing is done fairly? Discuss the major codes of ethics of the stakeholders involved in the issue and how these codes will...

The estimates shown are for a bridge under consideration. Use the B/C ration method at an...

The estimates shown are for a bridge under consideration. Use the B/C ration method at an interest rate of 6% per year to determine which bridge, if either , should be built. East Location West Location Initial Cost, $ 11,000,000 27,000,000 Annual M&O, $/year 100,000 90,000 Benefits $/year 990,000 2,400,000 Disbenefits $/year 120,000 100,000 Life, years infinity infinity

An experiment was designed to estimate the mean difference in weight gain for pigs fed ration...

An experiment was designed to estimate the mean difference in weight gain for pigs fed ration A as compared with those fed ration B. Eight pairs of pigs were used. The pigs within each pair were litter-mates. The rations were assigned at random to the two animals within each pair. The gains (in pounds) after 45 days are shown in the following table. Assuming weight gain is normal, find the 98% confidence interval estimate for the mean of the differences...

Question