Question 63
HardOriginal questionP₁ = ₹4 and P₂ = ₹2. At a consumer's current bundle on the budget line, the MRS is 3. What should he do?
Show the answer and explanation
CorrectNot quiteAnswer D
Correct answer: D
Explanation
He would give up 3 units of good 2 for one more unit of good 1, but the market asks only P₁ ÷ P₂ = 2.
So swapping good 2 for good 1 raises his satisfaction; as he does, his MRS falls towards 2.
- Concept
- When MRS is above the price ratio
- Typical timeTypical
- 100 s
- Your timeYours
- —
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