Suppose Frank buys only milk and cereal, both of which are normal goods, and he always maximizes his utility.Suppose Frank's boss cuts Frank's pay by $200 per month.What happens to Frank's marginal rate of substitution between milk and cereal?
A)It fluctuates randomly.
B)It decreases.
C)It increases.
D)It stays constant.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) depends on Frank's preferences and the relative prices of milk and cereal, not on his income. Therefore, a change in income does not affect the MRS.

Suppose Frank Buys Only Milk and Cereal, Both of Which