Jamie is considering the purchase of a new car for $20,000.Her income is $60,000,and her alternative is "all other things," which sell for $1 each.If all other things are plotted on the vertical axis and her marginal rate of substitution is ,then she will buy car(s).
A) 15,000; 0
B) 15,000; 1
C) 15,000; 2
D) 15,000; 3
E) 1/15,000; 3

Question

Quizplus · Accepted Answer

The marginal rate of substitution is the slope of the indifference curve. If the indifference curve is a straight line, then the marginal rate of substitution is constant. In this case, the marginal rate of substitution is 15,000. This means that Jamie is willing to give up 15,000 units of all other things to get one more car. Since Jamie's income is $60,000, she can afford to buy 4 cars.

Jamie Is Considering the Purchase of a New Car for $20,000.Her