Figure 21-18 -Refer to Figure 21-18. Bundle D represents a point where A) MRSxy Py/Px. B) MRSxy = Px/Py. C) MRSxy

Question

Figure 21-18 
-Refer to Figure 21-18. Bundle D represents a point where
A) MRSxy > Py/Px. 
B) MRSxy = Px/Py. 
C) MRSxy < Px/Py. 
D) MRSxy < Py/Px.

Quizplus · Accepted Answer

Bundle D represents a point where the slope of the indifference curve is steeper than the slope of the budget line. This implies that MRSxy (the marginal rate of substitution of good x for good y) is less than Px/Py (the ratio of the prices of good x and good y). Therefore, C is the best choice.

Figure 21-18 -Refer to Figure 21-18. Bundle D Represents a Point Where