Suppose that Alex's marginal rate of substitution (MRS) between good A and B is always equal to -2. The prices of the goods are $5 and $4 respectively. Alex's income is $20. Thus, his optimal consumption bundle must be (x*1,x*2) = (4,0), i.e., his demand for good A and good B is x*1 = 4 and x*2 = 0, respectively. Is this true or false? If true, show the steps in full to justify and if it is false, show the correct demand and expalin in details.
Suppose that Alex's marginal rate of substitution (MRS) between good A and B is always equal to -2. The prices of the goods are $5 and $4 respectively. Alex's income is $20. Thus, his optimal consumption bundle must be (x*1,x*2) = (4,0), i.e., his demand for good A and good B is x*1 = 4 and x*2 = 0, respectively. Is this true or false? If true, show the steps in full to justify and if it is false, show the correct demand and expalin in details.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section6.A: Indifference Curve Analysis
Problem 1SQP
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Suppose that Alex's marginal rate of substitution (MRS) between good A and B is always equal to -2. The prices of the goods are $5 and $4 respectively. Alex's income is $20. Thus, his optimal consumption bundle must be (x*1,x*2) = (4,0), i.e., his demand for good A and good B is x*1 = 4 and x*2 = 0, respectively.
Is this true or false? If true, show the steps in full to justify and if it is false, show the correct demand and expalin in details.
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