If the marginal rate of substitution of pepsi for pizza is six litres of pepsi for one pizza slice, and the price of pepsi is $1 per litre and the price of pizza is $3 per slice, then this consumer should:
A)trade pepsi for pizza and end up on a higher indifference curve
B)trade pizza for pepsi and end up on a higher indifference curve
C)do nothing as they are already maximizing utility
D)we cannot say without more information

Question

Quizplus · Accepted Answer

The consumer values 6 litres of pepsi as equivalent to 1 pizza slice, but the market values 3 litres of pepsi as equivalent to 1 pizza slice. Therefore, the consumer should trade pepsi for pizza to reach a higher indifference curve and increase utility.

If the Marginal Rate of Substitution of Pepsi for Pizza