Meaning of the Tangency Condition Consumer's marginal willingness to pay equals the market exchange rate Suppose at a consumption bundle( x,, x2) MRS=2,P1P2=-1 The consumer is willing to give up 2 unit of x to exchange for an additional unit of X, The market allows her to give up only 1 unit of x to obtain an additional x (X1, X2)is not optimal choice She can be better off increasing her consumption of x,.Meaning of the Tangency Condition Consumer’s marginal willingness to pay equals the market exchange rate. Suppose at a consumption bundle (x1 , x2 ), MRS=-2, -P1 /P2=-1 – The consumer is willing to give up 2 unit of x2 to exchange for an additional unit of x1 – The market allows her to give up only 1 unit of x2 to obtain an additional x1 (x1 , x2 ) is not optimal choice She can be better off increasing her consumption of x1