Samara's income is $30 a month and she spends all of it on music downloads and gasoline. The price of a music download is $3 and the price of a gallon of gasoline is $3. At Samara's best affordable point, her marginal rate of substitution is ________ gallon of gasoline per music download.
A) 0.5
B) 1
C) 1.5
D) More information is needed to determine the marginal rate of substitution.

Question

Quizplus · Accepted Answer

Samara can spend her entire income either on music downloads or gasoline. The price of both the goods is the same at $3. Therefore, at the best affordable point, the marginal rate of substitution will be 1 gallon of gasoline per music download. This implies that Samara is willing to give up 1 gallon of gasoline to obtain one more music download.

Samara's Income Is $30 a Month and She Spends All