What happens when MRS is greater than PX PY?
if MRS > Px/Py, the consumer will consume more x and less y. If MRS < Px/Py, the consumer will consume less x and more y. This means that if the slope of the indifference curve is steeper than that of the budget line, the consumer will consume more x and less y.Click to see...
if MRS > Px/Py, the consumer will consume more x and less y. If MRS < Px/Py, the consumer will consume less x and more y. This means that if the slope of the indifference curve is steeper than that of the budget line, the consumer will consume more x and less y.Click to see full answer. Furthermore, what is PX PY?Px/Py tells you how much units of Y you are FORCED to give away for certain units of X. The MRS tells you how much units of Y you are WILLING to give away for certain units of X.Secondly, how does Mrs impact the shape of IC? If MRS is constant then indifference curve is STRAIGHT line sloping downward. MRS is responsible for the convex nature of IC curve as it is the rate at which consumer is willingb to substitute one commodity for other it is declining as when one good is consumed more so its utility decrease so MRS falls . Accordingly, why is the slope of budget line Px Py? The slope of the budget constraint has special significance. The absolute value of the slope represents the relative prices of the two goods, X and Y. In Exhibit 1, the slope, or PX /PY, is equal to 1.25, indicating that the relative price of 1 unit of X is 1.25 units of Y.Why is Mrs equal to price ratio?In other words, the MRS (the slope of the indifference curve) must be equal to the price ratio (the slope of the budget line). The reason is that otherwise the consumer could reach a higher indifference curve within the same budget set by altering the chosen bundle.
