Explain the reaction of the consumer when Price Ratio (or Market Rate of Exchange) is higher than marginal Rate of Substitution

Explain the reaction of the consumer when Price Ratio (or Market Rate

1.	Explain the reaction of the consumer when Price Ratio (or Market Rate of Exchange) is higher than marginal Rate of Substitution
Answer» Solution : when Price Ratio (or Market Rate of EXCHANGE) is higher than marginal Rate of Substitution, it means that to OBTAIN ONE more unit of X, the consumer is willing to SACRIFICE less units of Y as compared to what is required in the market. It induces the consumer to buy less of X and more of Y. As a result, MRS rises till it becomes equal to the ratio of PRICES and the equilibrium is achieved.