-Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If Max is currently at point e,
A)his MRS is less than the trade-off offered by the market.
B)he is willing to give up more burger than he has to,given market prices.
C)he is not maximizing his utility.
D)All of the above.

Question

-Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If Max is currently at point e,
A)his MRS is less than the trade-off offered by the market. 
B)he is willing to give up more burger than he has to,given market prices. 
C)he is not maximizing his utility. 
D)All of the above.

Quizplus · Accepted Answer

At point e, Max's Marginal Rate of Substitution (MRS) is less than the trade-off offered by the market, indicating he values the goods differently than their market prices suggest. This means he is willing to give up more of one good (burger) than he has to, given market prices, to obtain the other good, which is not an optimal choice. Therefore, he is not maximizing his utility because he could adjust his consumption to a point where his MRS equals the market trade-off, achieving a higher level of satisfaction within his budget.

-Max Has Allocated $100 Toward Meats for His Barbecue