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

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. Since the prices of both goods (music downloads and petrol) are the same ($3 each), the MRS, in this case, would be 1 litre of petrol per music download, indicating a one-to-one trade-off between the two goods at their given prices.

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