Making sure my answers are correct Comparing the slope of the budget line (Opportunity Cost of Good Y) with the slope of theIndifference Curve (Marginal Rate of Substitution) for a given bundle allows comparisonbetween the value of a good in consumption vs. the value of the good in exchange.If the Opportunity Cost is greater than the MRS, the bundle cannot be optimal.Good X141210BCBL₁IC₂Good Y✔At point A, the budget line is steeper than the indifference curve through A.At point A, the MRS is greater than the oportunity cost of good Y.If the person sold Y and bought X he could move from A to B on the budget line.✔ If the person sold 2 units of Y he could buy 4 units of X.At point A, if the person gave up 2 units of Y he would need 2 units of X to stay on the sameindifference curve.Because he could get 4 units of good X if he gave up 2 units Y in exchange and it only requires 2units of X to compensate him for the loss of 2 units of Y, point A cannot be utility maximizing.

Marginal Rate of Substitution:In microeconomics, the marginal rate of substitution (MRS) shows the…

Comparing the slope of the budget line (Opportunity Cost of Good Y) with the slope of the Indifference Curve (Marginal Rate of Substitution) for a given bundle allows comparison between the value of a good in consumption vs. the value of the good in exchange. If the Opportunity Cost is greater than the MRS, the bundle cannot be optimal. Good X 14 12 B C 10 BL₁ 16₂ Good Y

Comparing the slope of the budget line (Opportunity Cost of Good Y) with the slope of the Indifference Curve (Marginal Rate of Substitution) for a given bundle allows comparison between the value of a good in consumption vs. the value of the good in exchange. If the Opportunity Cost is greater than the MRS, the bundle cannot be optimal. Good X 14 12 B C 10 BL₁ 16₂ Good Y

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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