Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true?
A) MRSxy = Px/Py.
B) MUx/MUy = Px/Py.
C) Px/Py = money income.
D) Px/Py = slope of the indifference curve at the optimal choice.
E) MUx/Px = MUy/Py.

Question

Quizplus · Accepted Answer

The price ratio Px/Py does not necessarily equal Oscar's money income. This statement assumes that Oscar spends all of his money on only X and Y, whereas in reality, he may have other sources of income and may choose to spend his money on other goods as well. Therefore, the price ratio cannot be equated with his money income in general.

Oscar Consumes Only Two Goods, X and Y