A rational consumer reaches to equilibrium when:
A rational consumer reaches to equilibrium when:
Solution
Option 1 -> MRS equals the rate at which goods can be exchanged, but this needs to equal the price ratio specifically for equilibrium.
Option 2 -> At equilibrium, the rate at which a consumer exchanges goods in the market must equal the price ratio, satisfying the optimization condition.
Option 3 -> Marginal rate of transformation relates to production, not consumer equilibrium; it's a producer-side concept.
Option 4 -> Total utility equaling total cost is not the condition for consumer equilibrium; equilibrium requires marginal conditions to be met.
Hence, Marginal rate of Exchange = Price Ratio -> A rational consumer reaches equilibrium when the marginal rate of exchange (the rate at which the consumer can trade goods in the market) equals the price ratio. This is equivalent to saying MRS = Px/Py, where the consumer's willingness to substitute one good for another matches the market trade-off between the goods. At this point, the consumer maximizes utility subject to the budget constraint, and no further gains can be made by reallocating expenditure. -> correct
This is as per NTA's final answer key:
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2026: 15 May Shift 1