Suppose that a consumer’s marginal rate of substitution at her current chosen bundle is MUx / MUY = 4, but she is able to exchange X and Y at Px/PY = 3. Should she keep her current bundle, or can she make herself better off by trading at these prices? Which good will she buy, and which will she sell?
Suppose that a consumer’s marginal rate of substitution at her current chosen bundle is MUx / MUY = 4, but she is able to exchange X and Y at Px/PY = 3. Should she keep her current bundle, or can she make herself better off by trading at these prices? Which good will she buy, and which will she sell?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that a consumer’s marginal rate of substitution at her current chosen bundle is MUx / MUY = 4, but she is able to exchange X and Y at Px/PY = 3. Should she keep her current bundle, or can she make herself better off by trading at these prices? Which good will she buy, and which will she sell?
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Marginal rate of substitution is the amount of one good that the consumer is willing to consume in relation to another good given the good provides the consumer the same level of satisfaction.
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