When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:
A) Joe's preferences are incomplete.
B) Joe's preferences are irrational.
C) Joe is not consuming good X.
D) Joe is not consuming good Y.

Question

Quizplus · Accepted Answer

If Joe's MRS of X for Y is greater than Px/Py, it means that he is willing to give up more Y for each unit of X than the market price ratio. This indicates that Joe is not consuming enough Y, and should consume more Y to reach the point where MRS of X for Y equals Px/Py, i.e. where he is maximizing his utility.

When Joe Maximizes Utility, He Finds That His MRS of X