Suppose that 2 units of X and 8 units of Y give a consumer the same satisfaction as 4 units of X and 2 units of Y. Then
A) the consumer is willing to give up 3 units of Y to obtain 1 more unit of X.
B) the consumer is willing to give up 1 unit of Y to obtain 3 more units of X.
C) the marginal rate of substitution of X for Y is 3.
D) both a and c
E) both b and c

Question

Quizplus · Accepted Answer

The given information implies that the marginal rate of substitution (MRS) of X for Y is decreasing. To obtain one more unit of X, the consumer is willing to give up 3 units of Y [(8-2)/(4-2)=3]. Therefore, option A is true. Also, the MRS of X for Y is equal to the ratio of marginal utilities of X and Y. Since the given information implies that MRS is decreasing, it implies that the marginal utility of X is falling relative to the marginal utility of Y. Therefore, option C is also true. Hence, the answer is option D.

Suppose That 2 Units of X and 8 Units of Y