<p>Building on @Art's answer, you can also think of it in terms of a dynamic process. Given some initial endowment of goods X and Y, everyone in the economy will want to trade goods X and Y back and forth until they are indifferent to further trading - which is to say, until their private MRS is equal to the price ratio. That's why "marginal rates of substitution are identical" -- all actors in the economy are working to shift their MRS towards the same target. </p>

<p>At that point, since there is no further flow of goods, that's your connection to equilibrium - a state of balance in which the variables endogenous to the system (in this case, consumption of X and Y) do not change.</p>

CC BY-SA 4.0
2019-11-07T15:29:18.340Z
2019-11-07T15:29:18.340Z
heh
<p>One explanation I could think of: MRS (which is equal to <span class="math-container">$MU_x/MU_y$</span>) is equal to the price ratio <span class="math-container">$P_x/P_y$</span>. In equilibrium, all consumers will consume where MRS = price ratio, and hence MRS will be "identical" across consumers.</p>

<p>I agree that this might not be a terribly good way of putting it.</p>

CC BY-SA 4.0
2019-11-07T11:29:06.837Z
Yes, "optimal consumption levels" would be better.
Bertrand
CC BY-SA 4.0
2019-11-07T07:27:13.400Z
2019-11-07T07:27:13.400Z
Art
<p>According to <a href="https://en.wikipedia.org/wiki/Marginal_rate_of_substitution" rel="nofollow noreferrer">wikipedia</a>, "At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical". Why is it so?</p>

<p>What does "equilibrium consumption levels" here mean? I thought that equilibrium means that demand equal to supply. How is it applicable for marginal rates of substitution?</p>

<microeconomics><general-equilibrium><marginal>
Why are marginal rates of substitution are identical at equilibrium consumption levels?
Aqqqq
# Why are marginal rates of substitution are identical at equilibrium consumption levels?

(Asked by: username_0 on 2019-11-07)

According to [wikipedia](https://en.wikipedia.org/wiki/Marginal_rate_of_substitution), "At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical". Why is it so?

What does "equilibrium consumption levels" here mean? I thought that equilibrium means that demand equal to supply. How is it applicable for marginal rates of substitution?

**Tags:** microeconomics, general-equilibrium, marginal


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## 2 answers

### Answer by username_2 on 2019-11-07. Score: 2 | Accepted answer

One explanation I could think of: MRS (which is equal to $MU\_x/MU\_y$) is equal to the price ratio $P\_x/P\_y$. In equilibrium, all consumers will consume where MRS = price ratio, and hence MRS will be "identical" across consumers.

I agree that this might not be a terribly good way of putting it.

> **Comments:**
> **username_3**: Yes, "optimal consumption levels" would be better.  

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### Answer by username_1 on 2019-11-07. Score: 1

Building on @username_2's answer, you can also think of it in terms of a dynamic process. Given some initial endowment of goods X and Y, everyone in the economy will want to trade goods X and Y back and forth until they are indifferent to further trading - which is to say, until their private MRS is equal to the price ratio. That's why "marginal rates of substitution are identical" -- all actors in the economy are working to shift their MRS towards the same target.

At that point, since there is no further flow of goods, that's your connection to equilibrium - a state of balance in which the variables endogenous to the system (in this case, consumption of X and Y) do not change.


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