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CUET Economics 2025 PYQs29 May Shift 2. Free, no login required.

Micro

past year questions, CUET Economics 2025 29 May Shift 2

Consumer Behaviour

past year questions, Micro, CUET Economics 2025 29 May Shift 2

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Equality of the Marginal Rate of Substitution and the Ratio of the Prices

The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. If the budget line is tangent to an indifference curve at a point, the absolute value of the slope of the indifference curve and that of the budget line are the same at that point. The slope of the indifference curve is the rate at which the consumer is willing to substitute one good for the other. The slope of the budget line is the rate at which the consumer is able to substitute one good for the other in the market. At the optimum, the two rates should be the same. To see why, consider a point where this is not so. Suppose the marginal rate of substitution at such a point is 2 and suppose the two goods have the same price. At this point, the consumer is willing to give up 2 mangoes if she is given an extra banana. But in the market, she can buy an extra banana if she gives up just 1 mango. Therefore, if she buys an extra banana, she can have more of both the goods compared to the bundle represented by the point, and hence, move to a preferred bundle. Thus, a point at which the MRS is greater, the price ratio cannot be the optimum. A similar argument holds for any point at which the MRS is less than the price ratio.

The rate at which the consumer is able to substitute one good for the other in the market is called?

Solution

✅ Correct Option: 1

Option 1 -> The price ratio represents the market exchange rate between two goods based on their relative prices.

Option 2 -> MRS reflects the consumer's willingness to substitute goods based on preferences, not the market rate.

Option 3 -> MRTS applies to production theory, showing input substitution rates in manufacturing.

Option 4 -> This is not a standard economic term for market substitution rates.

Hence, Price Ratio -> The price ratio (Px/Py) determines the actual rate at which consumers CAN substitute goods in the market. For example, if good X costs 10andgoodYcosts10 and good Y costs 5, the price ratio is 2:1, meaning the market allows you to exchange 1 unit of X for 2 units of Y. This is different from MRS, which shows how much a consumer is WILLING to substitute based on preferences. The price ratio represents the objective market constraint, while MRS represents subjective consumer preferences. At equilibrium, MRS equals the price ratio. -> correct

More from this set:

Question 41

The economic concept at which the consumer is willing to substitute one good for the other?

Question 43

The exceptional case in optimal choice of the consumer is where ..................

Question 44

The optimum bundle of the consumer is located at the point where..................?

Question 45

A consumer is willing to give up 4 bananas if it is given an extra mango, but in the market, if it gives up 6 bananas, this bundle will be considered.

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