Question
1. For an individual who consumes only two goods, x and y , the opportunity cost of consuming one more unit of x in terms
1. For an individual who consumes only two goods, x and y, the opportunity cost of consuming one more unit of x in terms of how much y must be given up is reflected by:
a. | the individual's marginal rate of substitution. | |
b. | the market prices of x and y. | |
c. | the slope of the individual's indifference curve. | |
d. | none of the above. |
Suppose an individual's MRS (of steak for beer) is 1:3. That is, at the current consumption choices he or she is willing to give up 3 steak to get an extra beer. Suppose also that the price of a steak is $1 and a beer is $4. Then in order to increase utility the individual should:
a. | buy more beer and less steak. | |
b. | continue with current consumption plans. | |
c. | none of answers above. | |
d. | buy more steak and less beer. |
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