Where the budget line is tangent to an IC, ________.

equals amounts of goods give equal satisfaction

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the ratio of price of the goods equals the MRS

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the prices of the goods are equal

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none of the above

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Solution

The correct option is D the ratio of price of the goods equals the MRS
The ratio of prices between good X and good Y which make one half if the indifference curve analysis. The value of ratio of price of goods is equal to the MRS which is obtained from the indifference curve. This gives the consumers equilibrium

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