According to the relative price rule, the optimal consumption bundle between hot dogs and beer takes place when the _____ rate of substitution is _____ their relative price.
A) total; equal to
B) marginal; equal to
C) marginal; higher than
D) total; lower than

Question

Quizplus · Accepted Answer

The marginal rate of substitution is the rate at which a consumer is willing to trade one good for another, while the relative price is the ratio of the prices of the two goods. The optimal consumption bundle occurs when the marginal rate of substitution is equal to the relative price, as this is the point at which the consumer is getting the most satisfaction from their consumption.

According to the Relative Price Rule, the Optimal Consumption Bundle