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When all consumers’ in a given market face the same prices and choose their consumption bundle...

When all consumers’ in a given market face the same prices and choose their consumption bundle optimally, then:

a. All consumers who consume a positive amount of both goods have the same marginal Rate of Substitution, independently of their income and preferences.

b. All consumers have the same marginal Rate of Substitution, independently of their income and preferences.

c. All consumers with identical preferences have the same marginal Rate of Substitution, independently of their income.

d. All consumers with identical income have the same marginal Rate of Substitution, independent of their preferences.

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Answer #1

Answer: c. All consumers with identical preferences have the same marginal Rate of Substitution, independently of their income.

Explanation: let's assume two goods X and Y.

since MRS = price ratio (Px/Py)

Where Px is the price of good X and Py is the price of good Y.

So if consumer have identical preferences, then there MRS will be same irrespective of income. Whereas if consumer doesn't have identical preferences, then it might be possible he is preferring one good ( say x) more than the other (say y) and in this case there MRS can be different.

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