Learning Path
Question & Answer
Choose the Best Answer
The marginal rate of substitution between X and Y equals the ratio of their prices.
The consumer spends all of their income on good X only.
Good Y is always preferred over good X regardless of the price.
The consumer should buy more of good Y if its price decreases.
Understanding the Answer
Let's break down why this is correct
At equilibrium the consumer chooses a bundle where the willingness to trade one good for another equals the market trade needed. Other options are incorrect because The idea that a person will spend all money on one good comes from the mistake of thinking only one item gives maximum pleasure; Assuming one good is always better is a common misunderstanding that ignores price and how much one values each item.
Key Concepts
Optimal Purchase Combinations
medium level question
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Deep Dive: Optimal Purchase Combinations
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Definition
Optimal purchase combinations refer to the most efficient mix of goods a consumer can buy based on marginal utility per dollar. By comparing the marginal utility of different goods to their prices, consumers aim to maximize total utility within budget constraints. Understanding optimal purchase combinations helps individuals make rational consumption choices.
Topic Definition
Optimal purchase combinations refer to the most efficient mix of goods a consumer can buy based on marginal utility per dollar. By comparing the marginal utility of different goods to their prices, consumers aim to maximize total utility within budget constraints. Understanding optimal purchase combinations helps individuals make rational consumption choices.
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