Microeconomics
2nd Edition
ISBN: 9780073375854
Author: B. Douglas Bernheim, Michael Whinston
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 4, Problem 1DQ
To determine
Determine preference of consumer.
Expert Solution & Answer
Explanation of Solution
The principle of declining MRS (marginal rate of substitution) implies that the consumer’s indifference curve are convex to the origin. In this case, the consumption bundle C lies between the consumption bundles A and B. It can be connected through a straight line. That means, C lies above the indifference curve that contains the consumption bundles A and B. Hence, C prefers both A and B. Thus, the answer is that consumer prefer C to A and B.
Economics Concept Introduction
Indifference curve: The indifference curve is a mathematical representation of the combination of all of the consumption bundles that provide a consumer with the same utility.
Marginal rate of substitution (MRS): The MRS is the slope of the indifference curve, which measures the willingness of a consumer to trade one good for the other.
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