The price of one good changes and Sue is now at a point on her indifference curve where the marginal rate of substitution exceeds the relative price. Sue will now choose to buy _______ of the good that is measured on the _______.
A) more; x- axis
B) the same quantity; x- axis
C) more; y- axis
D) less; x- axis

Question

Quizplus · Accepted Answer

When the marginal rate of substitution (MRS) exceeds the relative price, it means that Sue values the good more than its cost. Therefore, she will buy more of the good. Since the question does not specify which good is on which axis, we assume the standard convention that the good in question is on the x-axis.

The Price of One Good Changes and Sue Is Now