Question
Marginal Rate of Substitution a. Consumers in Georgia pay twice as much for avocados as they do for peaches. However, avocados and peaches are the
Marginal Rate of Substitution
a. Consumers in Georgia pay twice as much for avocados as they do for peaches. However, avocados and peaches are the same price in California. If consumers in both states maximize utility, will the marginal rate of substitution of peaches for avocados be the same for consumers in both states? If not, which will be higher? (Graphs not needed.)
b. Assume Carolyn is given a bundle on her budget constraint where her MRSFC = 2. Also, assume the price of a unit of food equals $3 and the price of a unit of clothes equals $6. Should Carolyn buy more food or more clothes to maximize her utility? Why? Explain in detail. (Graphs not needed.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started