Answer to Question #145445 in Macroeconomics for Bakang

Question

A. For Kabelo, a consumer of bread and sorghum will be in equilibrium position if the marginal rate of substitution between the two goods is equal to ratio of prices of the two goods.’’ Do you agree with the given statement? Justify your answer. (10 marks).

Answer 1

Kabelo will be in equillibrium.

This is because the two products,sorghum and bread are not substitutes to each other,therefore you can not give up one of them for the other. For equillibrium to change the two products should be close substitute so that the consumers may consider one over the other thereby decreasing the consumed quantity of one product.