A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is less than the slope of the budget constraint.We can conclude that the consumer
A) is currently maximizing satisfaction.
B) could increase satisfaction by consuming more X and less Y.
C) could increase satisfaction by consuming less X and more Y.
D) could purchase more X and more Y and increase total satisfaction.

Question

Quizplus · Accepted Answer

The fact that the marginal rate of substitution is less than the slope of the budget constraint suggests that the consumer is not fully maximizing their satisfaction. This means that the consumer could be better off by consuming more of good Y and less of good X, as this would increase the marginal utility of good Y relative to the marginal utility of good X, making the marginal rate of substitution closer to the slope of the budget constraint. Therefore, the answer is C, as the consumer could increase satisfaction by consuming less X and more Y.

A Consumer Has Preferences Over Two Goods,X and Y