Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. i. Draw an indifference curve showing the optimum choice. What would be the marginal rate of substitution at the point that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.

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Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.