CA Foundation Exam > CA Foundation Questions > In a situation whenMRS>PX/PY, the consumer...
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In a situation when MRS>PX/PY, the consumer would react by
- a)diminishing the consumption of commodity-X
- b)increasing the consumption of commodity-Y
- c)increasing the consumption of commodity-X
- d)none of these
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
In a situation whenMRS>PX/PY, the consumer would react bya)diminish...
MRS is the amount of Good-Y which a consumer is willing to give up for one unit more of Good-X. In a situation when MRS>PX/PY, the consumer would react by increasing the consumption of commodity-X.
Most Upvoted Answer
In a situation whenMRS>PX/PY, the consumer would react bya)diminish...
(Marginal Rate of Substitution) is equal to the ratio of prices of two goods, it means that the consumer is in equilibrium. This is because at this point, the consumer is indifferent between consuming more of one good or the other. Any further increase in the consumption of one good would require a decrease in the consumption of the other good, and this would result in a decrease in overall satisfaction. Therefore, the consumer will not make any changes to their current consumption pattern as they are already at their optimal point.
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In a situation whenMRS>PX/PY, the consumer would react bya)diminishing the consumption of commodity-Xb)increasing the consumption of commodity-Yc)increasing the consumption of commodity-Xd)none of theseCorrect answer is option 'C'. Can you explain this answer?
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