A given budget constraint has only one indifference curve that is tangent for a specific set of prices. However, there may be numerous indifference curves that intersect the same budget constraint. Explain in terms of relative prices, opportunity costs and the marginal rate of substitution.

Question

Business

Melody Ballard

12 September, 02:20

A given budget constraint has only one indifference curve that is tangent for a specific set of prices. However, there may be numerous indifference curves that intersect the same budget constraint. Explain in terms of relative prices, opportunity costs and the marginal rate of substitution.

+1

Answers (1)

Know the Answer?

Donavan Hays · Answer 1

Opportunity cost explained in terms of relative price means the quantity of a particular good that could be bought with the price of another good while marginal rate of substitution means the quantity of a particular good that has to be given up in order to acquire an extra unit of another product, and the same level of satisfaction still maintained.

They are both use to make decisions in a situation of budget constraint