When does the marginal rate of substitution (MRS) in an indifference curve equal the ratio of marginal utilities in marginal-utility analysis? Explain
Please provide the best answer for the statement.
In equilibrium for the two good case, the MRS for good A and good B equals the ratio of the price of B to the price of A (Pb/Pa). Similarly, in equilibrium in marginal utility analysis, the ratio of the marginal utility of B to the marginal utility of A (MUb/MUa) equals the price of B divided by the price of A (Pb/Pa). MRS and the MUb/MUa equal the same value and are equal when there is equilibrium. If this equilibrium were not the case, then the consumer could be made better off by buying more of one good and less of the other since the marginal utility of one exceeds the other. This situation will cause the marginal utilities to change until they reach the equilibrium ratios, and the consumer can be made no better off.
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