If the consumer is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is purchasing
A)too much food for utility maximization.
B)too much shelter for utility maximization.
C)just the right amount of each good for utility maximization.
D)less than the budget would allow.

Question

Quizplus · Accepted Answer

The consumer's willingness to trade 3 units of food for 1 unit of shelter implies a marginal rate of substitution (MRS) of 3. The price ratio of food to shelter is 10/20 = 0.5. Since MRS (3) > price ratio (0.5), the consumer is giving up too much food relative to shelter, indicating they are purchasing too much food for utility maximization.

If the Consumer Is Willing to Give Up 3 Units