If the marginal rate of substitution of X for Y is 2, the price of X is $3, and the price of Y is $1, a utility-maximizing consumer should
A) be indifferent between 1X and 2Y.
B) prefer 3Y to 1X.
C) choose less X and more Y.
D) choose more X and less Y.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) of X for Y is the amount of Y the consumer is willing to give up for one extra unit of X while staying on the same indifference curve. In this case, the MRS is 2, meaning the consumer is willing to give up 2 units of Y for one extra unit of X. However, the price of X is 3 times that of Y, which means the consumer would have to give up 6 units of Y to buy one extra unit of X. Since the consumer is only willing to give up 2 units of Y for one extra unit of X, it is better for the consumer to choose less X and more Y. Therefore, the consumer should choose option C and be willing to give up 2 units of Y to buy one unit of X.

If the Marginal Rate of Substitution of X for Y