It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute four pounds of a generic store-brand sugar for two pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution between store-brand and producer-brand sugar? No Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? Producer-brand sugar: pounds Store-brand sugar: pounds If prices change such that the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound, how much of each type of sugar will be purchased? Producer-brand sugar: pounds Store-brand sugar: pounds
It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute four pounds of a generic store-brand sugar for two pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution between store-brand and producer-brand sugar? No Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? Producer-brand sugar: pounds Store-brand sugar: pounds If prices change such that the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound, how much of each type of sugar will be purchased? Producer-brand sugar: pounds Store-brand sugar: pounds
Chapter1: Making Economics Decisions
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Transcribed Image Text:It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other
products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a
constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute four pounds of
a generic store-brand sugar for two pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of
substitution between store-brand and producer-brand sugar?
No
Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of
producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased?
Producer-brand sugar:
pounds
Store-brand sugar:
pounds
If prices change such that the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound,
how much of each type of sugar will be purchased?
Producer-brand sugar:
pounds
Store-brand sugar:
pounds
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