According to the relative price rule, the optimal consumption bundle between hot dogs and beer takes place when the ________ rate of substitution is their relative price.
A)total; equal to
B)marginal; equal to
C)marginal; higher
D)than total; lower than

Question

Quizplus · Accepted Answer

The relative price rule states that the optimal consumption bundle of two goods occurs when the marginal rate of substitution (MRS) between them is equal to their relative price. In this case, hot dogs and beer are the two goods, and the question is asking for the optimal consumption bundle between them. Therefore, the best choice is option B, which states that the MRS between hot dogs and beer is equal to their relative price. Options A, C, and D are incorrect because they do not accurately reflect the relative price rule.

According to the Relative Price Rule, the Optimal Consumption Bundle