Suppose Ezra has chosen a combination of two goods, A and B, such that the margi

Question

Suppose Ezra has chosen a combination of two goods, A and B, such that the marginal utility per dollar spent of good A is 2 and the marginal utility per dollar spent of good ? is 10. To increase his utility with the same amount of money, he should: Increase the amount of A consumed and decrease the amount of ? consumed Increase the amount of ? consumed and decrease the amount of A consumed Increase the amount of both A and ? consumed Decrease the amount of both A and ? consumed Jameis has preferences over two goods: books and movies. The two bundles shown in the table below lie on the same indifference curve for Jameis Which of the following bundles could not lie on the same indifference curve with A and ? and satisfy the four properties of indifference curves? 1 movie and 5 books 3 movies and 3 books 5 movies and 1 book 1 movies and 7 books The closer two goods are to being perfect substitutes, the closer the indifference curves will be to Straight lines L-shaped Intersecting Heaven When examining a consumer's choice between two goods, the slope of an indifference curve is meant to represent: The ratio of the prices of the two goods One person's struggle to find the true meaning of life The marginal utility divided by the price of each good The marginal rate of substitution between the two goods

Explanation / Answer

1. MUb / Pb is greater than MUa / Pa (10>2), then the consumer will substitute good 'B' for good 'A'. As a result the marginal utility of good 'A' will fall.

The consumer will continue substituting good 'B' for good 'A' till MUA/PA = MUB/PB where the consumer will be in equilibrium. Thus this is also known as the law of substitution.

The correct option is therefore B.

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