23. Suppose that at current consumption levels an individual\'s marginal utility

Question

23. Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2. Then the MRS (of soft drinks for hot dogs) that is, the number of hot dogs the individual is willing to give up to get one more soft drink-is a. 2. 1/2 1/5 C. d. 24. The slope of the budget constraint line is a.the ratio of the prices (p/py) b.the negative of the ratio of the prices (p/py) C. d. none of the above. the ratio of income divided by price of y (Ilpy) 25. Suppose that an individual has a constant MRS of shoes for sneakers: (that is, he or she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes). Then, if sneakers and shoes are equally costly, he or she will a. buy only sneakers buy only shoes. spend his or her income equally on sneakers and shoes wear sneakers only 3/4 of the time C. d.

Explanation / Answer

23.

Answer: a; 5

MRS = MU of HD / MU of SD

         = 10 / 2

         = 5

24.

Answer: a

Budget constraint is downward slopping from left to right between two goods or services. It indicates of having one good by sacrificing the other one only. The ratio of prices would be the slope, which doesn’t consider any negative sign.

25.

Answer: b

The person has higher marginal utility always for shoes, because its relative MRS is constant. Therefore, he/she will go for shoes only if both are equally costly.

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