Consider the following three market baskets. $$\begin{array} { c c c }
\text { Basket } & \text { Good x } & \text { Good y } \
\text { A } & 2 & 8 \
\text { B } & 10 & 2 \
\text { C } & 6 & 5
\end{array}$$ If Basket A and Basket B are on the same indifference curve, preferences satisfy the usual assumptions, and the indifference curves have a diminishing marginal rate of substitution, which of the following is correct?
A)Basket C is preferred to Basket A
B)Basket A is preferred to Basket C
C)The consumer is indifferent between Basket A and Basket C
D)There is not enough information to determine how the consumer would rank Basket A relative to Basket C.

Question

Consider the following three market baskets. $$\begin{array} { c c c } 
\text { Basket } & \text { Good x } & \text { Good y } \
\text { A } & 2 & 8 \
\text { B } & 10 & 2 \
\text { C } & 6 & 5
\end{array}$$ If Basket A and Basket B are on the same indifference curve, preferences satisfy the usual assumptions, and the indifference curves have a diminishing marginal rate of substitution, which of the following is correct?
A)Basket C is preferred to Basket A
B)Basket A is preferred to Basket C
C)The consumer is indifferent between Basket A and Basket C
D)There is not enough information to determine how the consumer would rank Basket A relative to Basket C.

Quizplus · Accepted Answer

Since Basket A and Basket B are on the same indifference curve, they provide the same level of utility. Basket C, with 6 units of x and 5 units of y, offers a combination that is likely to be on a higher indifference curve due to the diminishing marginal rate of substitution, making it preferred to Basket A.

Consider the Following Three Market Baskets If Basket a and Basket B Are on the Same