Question 64
HardOriginal questionP₁ = ₹6 and P₂ = ₹3. At a consumer's current bundle on the budget line, the MRS is 1. To reach the optimum he should
Show the answer and explanation
CorrectNot quiteAnswer B
Correct answer: B
Explanation
The market rate is P₁ ÷ P₂ = 2: one unit of good 1 costs 2 units of good 2.
He values a unit of good 1 at only 1 unit of good 2, less than it costs, so he should give up good 1 for good 2.
- Concept
- When MRS is below the price ratio
- Typical timeTypical
- 100 s
- Your timeYours
- —
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