QUESTION 23 Johnny has allocated $30 toward coffee and tea and for him coffee an

Question

QUESTION 23

Johnny has allocated $30 toward coffee and tea and for him coffee and tea are perfect substitutes. His MRS(coffee,tea) = - 2. If coffee and tea sell for the same price Johnny will
(hint: tea is x2 and coffee is x1)

be indifferent between any bundle of coffee and tea costing $30

spend all $30 on tea

spend all $30 on coffee

spend $20 on coffee and $10 on tea

be indifferent between any bundle of coffee and tea costing $30

spend all $30 on tea

spend all $30 on coffee

spend $20 on coffee and $10 on tea

Explanation / Answer

c.

spend all $30 on coffee.

MRS 2 shows coffee is more prferrable than tea for him i.e. h is indifferent between 2unit of tea and 1 unit of coffee..

hence for equal price he will go for coffee

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