Figure 21-9 -Refer to Figure 21-9.Bundle D represents a point where A) MRS_xy P_y/P_x. B) MRS_xy = P_x/P_y. C) MRS_xy

Question

Figure 21-9 -Refer to Figure 21-9.Bundle D represents a point where A) MRS_xy > P_y/P_x. B) MRS_xy = P_x/P_y. C) MRS_xy < P_x/P_y. D) MRS_xy < P_y/P_x.

Quizplus · Accepted Answer

At bundle D, the slope of the budget line (P_x/P_y) is steeper than the slope of the indifference curve (MRS_xy). Therefore, to reach point D, the consumer must give up more y (vertical axis) for every x (horizontal axis) gained, which means that the marginal rate of substitution is lower than the ratio of prices. Hence, MRS_xy < P_x/P_y.

Figure 21-9 -Refer to Figure 21-9.Bundle D Represents a Point Where