How will the consumer move along his indifference curve in a situation when MRS>( Px/Py). Draw its indifference curve also (p.75)?
Dear Student,
IF MRS> PX/PY, The consumer will move downwards in the IC curve .
A consumer is in equilibrium when MRS=PX/PY.When MRS is greater then the ratio of prices of both the products.We have to lower down down the MRS. By the consumption of more of product it will lead to decrease in MRS. By consumption of more of good X will lead to decrease in MRS and a point will come when MRS will be equal to the ratio of the prices of goods.That point will be called Point of Equilibrium.
Hope this information will clear your doubts on this topic.
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Regards
IF MRS> PX/PY, The consumer will move downwards in the IC curve .
A consumer is in equilibrium when MRS=PX/PY.When MRS is greater then the ratio of prices of both the products.We have to lower down down the MRS. By the consumption of more of product it will lead to decrease in MRS. By consumption of more of good X will lead to decrease in MRS and a point will come when MRS will be equal to the ratio of the prices of goods.That point will be called Point of Equilibrium.
Hope this information will clear your doubts on this topic.
If you have any more doubts just ask on the forum and our experts will try to help you out as soon as possible.
Regards