In indifference curve analysis, the fundamental condition of equilibrium is ___________.

M R S_{x, y} = \frac{P_{x}}{P_{y}}

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M R S_{x, y} = \frac{P_{y}}{P_{x}}

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M R S_{x, y} \neq {\frac{P_{x}}{P}}_{y}

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Both A and B

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Solution

The correct option is A $M R S_{x, y} = \frac{P_{x}}{P_{y}}$
The equation in option A states that the marginal rate of substitution of x and y is the price of x upon the price of y. In option B the slope would be the inverse of the original equilibrium which would be completely wrong. The third and fourth option are completely irrelevant.

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