Asked by
Paneri kansara
on Nov 16, 2024
Verified
Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of
A) cheese, decrease his consumption of wine, and move to a lower indifference curve.
B) cheese, decrease his consumption of wine, and move to a higher indifference curve.
C) wine, decrease consumption of cheese, and move to a higher indifference curve.
D) cheese, decrease consumption of wine, and remain on the same indifference curve.
Marginal Rate
The rate at which something changes with each additional unit, such as the marginal tax rate, which is the rate applied to each additional dollar of income.
Substitution
The economic principle where consumers replace more expensive items with less costly alternatives.
Indifference Curve
A graphical representation of different combinations of two goods or services among which a consumer is indifferent, showing preferences of consumption.
- Explore how alterations in prices or income influence consumer selections and constraints on their budgets.
- Distinguish between different types of goods (normal, inferior, complements, and substitutes) based on consumer behavior.
Verified Answer
SS
Learning Objectives
- Explore how alterations in prices or income influence consumer selections and constraints on their budgets.
- Distinguish between different types of goods (normal, inferior, complements, and substitutes) based on consumer behavior.