After learning about indifference curves, Sandy realizes that her marginal rate of substitution of grapes for cheese is equal to 2.Since the price of cheese is $3 and the price of grapes is $1, Sandy:
A)should buy more grapes and less cheese.
B)should buy more cheese and fewer grapes.
C)is maximizing her utility.
D)is on her highest possible indifference curve.

Question

Quizplus · Accepted Answer

Sandy's marginal rate of substitution (MRS) of grapes for cheese is equal to the ratio of their prices, which is 2. This means that Sandy is willing to give up 2 units of cheese to get an additional unit of grapes, and she would still be equally satisfied. Since the price of cheese is higher than the price of grapes, Sandy should consume more grapes and less cheese in order to achieve the highest level of satisfaction (utility) given her budget constraint. Thus, option A is the best choice.

After Learning About Indifference Curves, Sandy Realizes That Her Marginal