You may consume ice cream or frozen yogurt, and ice cream consumption is plotted along the horizontal axis of your indifference map. The prices are denoted P_Y for frozen yogurt and P_IC for ice cream. Under what condition will you only consume frozen yogurt? A) MRS is greater than P_IC/P_Y. B) MRS is less than P_IC/P_Y. C) MRS is less than P_Y/P_IC. D) MRS is infinite.

Question

Quizplus · Accepted Answer

The condition under which you will only consume frozen yogurt is when the marginal rate of substitution (MRS) of ice cream for frozen yogurt is less than the price ratio of ice cream to frozen yogurt (P_IC/P_Y). This indicates that the consumer values frozen yogurt more relative to its price than ice cream, leading to a preference for consuming only frozen yogurt.

You May Consume Ice Cream or Frozen Yogurt, and Ice