Question

A consumer consumes only two goods X and Y both priced at ₹ 4 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 4, then the consumer will ______.

Options

• Buy more units of X

• Buy more units of Y

• Buy more units of both, X and Y

• Buy less units of both, X and Y

Answer 1

A consumer consumes only two goods X and Y both priced at ₹ 4 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 4, then the consumer will buy more units of X.

Explanation:

The price ratio is `P_X/P_Y = 4/4 = 1`, while MRS is 4, so MRS exceeds the price ratio. The consumer will buy more X until MRS falls to the price ratio.