Joe consumes just two goods, x₁and x₂and both are inessential. His indifference curves are convex. Joe will buy a positive quantity of x₁if: A)MRS(0, M/p₂) p₁/p₂. B)MRS(0, M/p₂)= p₁/p₂. C)MRS(0, M/p₂)

Question

Joe consumes just two goods, x₁and x₂and both are inessential. His indifference curves are convex. Joe will buy a positive quantity of x₁if: A)MRS(0, M/p₂)> p₁/p₂. B)MRS(0, M/p₂)= p₁/p₂. C)MRS(0, M/p₂)< p₁/p₂. D)MRS(M/p₁, 0)< p₁/p₂.

Quizplus · Accepted Answer

Joe will buy a positive quantity of x₁ if the marginal rate of substitution (MRS) between x₁ and the income good (M/p₂) is greater than the ratio of their prices (p₁/p₂). This is represented by choice (A).

Joe Consumes Just Two Goods, X1 and X2 and Both

Joe Consumes Just Two Goods, X₁and X₂and Both