Question 67
HardOriginal questionP₁ = ₹2 and P₂ = ₹1, so the price ratio P₁ ÷ P₂ is 2. Match each MRS at the consumer's bundle with what he should do.
| List I | List II |
|---|---|
| A. MRS = 3 | I. Stay: he is at the optimum |
| B. MRS = 2 | II. Buy much less of good 1 |
| C. MRS = 1 | III. Buy more of good 1 |
| D. MRS = 0.5 | IV. Buy less of good 1 |
Show the answer and explanation
CorrectNot quiteAnswer D
Correct answer: D
Explanation
MRS above 2: good 1 is worth more to him than it costs, so buy more. MRS = 2: tangency, the optimum.
MRS below 2: good 1 is worth less than it costs, so buy less; the further below, the larger the move.
- Concept
- MRS against the price ratio
- Typical timeTypical
- 120 s
- Your timeYours
- —
Practise this chapter →
Ten questions from Budget Line & Optimal Choice, at your own pace.