Pooh spends all of his income on honey and maple syrup.Because he views honey and maple syrup as perfect substitutes,he is willing to substitute honey for maple syrup at the constant rate of 1 teaspoon of honey to 2 teaspoons of maple syrup.If the price of honey in terms of maple syrup is 2.2,Pooh's optimal consumption bundle will consist entirely of maple syrup.

Question

Quizplus · Accepted Answer

Given that Pooh views honey and maple syrup as perfect substitutes at a constant rate of 1 teaspoon of honey to 2 teaspoons of maple syrup, and the price of honey in terms of maple syrup is 2.2, it means honey is more expensive than the rate at which Pooh is willing to substitute. Therefore, he will consume only maple syrup, as it gives him more utility per unit of expenditure.

Pooh Spends All of His Income on Honey and Maple