Expert Answers

Suppose that a consumer buys only 2 goods , X and Y. At the current consumption bundle, the marginal rate of substitution is 3, the price of Good X is $4, and the price of Good Y is $2.
a. How many units of Good Y is the consumer willing to give up to obtain on more unit of Good X? How many units of Good X is the consumer willing to give up to obtain 1 more unit of Good Y? (Hint. Indifference Curve)

b. How many units of Good Y is the consumer have to give up to obtain on more unit of Good X? How many units of Good X is the consumer have to give up to obtain 1 more unit of Good Y? (hint:budget line)

c. Is the consumer making an optimal choice? Why or why not?

d. If the consumer is a utility-maximizer, what should the consumer do? Explain your reasoning.