Asked by Faith DeNoyer on Jul 29, 2024
Verified
Josephine buys 3 quarts of milk and 2 pounds of butter when milk sells for $2 a quart and butter sells for $1 a pound.Wilma buys 2 quarts of milk and 3 pounds of butter at the same prices.Josephine's marginal rate of substitution between milk and butter is greater than Wilma's.
Marginal Rate
A measure of the change in a variable (often cost, revenue, or profit) as it relates to a unit change in another variable.
Substitution
The economic principle describing how consumers or producers switch between goods or resources as relative prices or availability change.
Quart
A unit of liquid volume equal to two pints, approximately 0.946 liters in the United States.
- Analyze how different pricing affects consumer choices and the marginal rate of substitution between goods.
Verified Answer
ZK
Zybrea KnightAug 03, 2024
Final Answer :
False
Explanation :
We can use the formula for the marginal rate of substitution (MRS) to compare Josephine's and Wilma's MRS:
MRS = (change in butter consumption)/(change in milk consumption)
For Josephine:
MRS = (1 pound)/(3 quarts/2) = 2/3
For Wilma:
MRS = (1 pound)/(2 quarts/2) = 1
Since Josephine's MRS is less than Wilma's, the statement is false.
MRS = (change in butter consumption)/(change in milk consumption)
For Josephine:
MRS = (1 pound)/(3 quarts/2) = 2/3
For Wilma:
MRS = (1 pound)/(2 quarts/2) = 1
Since Josephine's MRS is less than Wilma's, the statement is false.
Learning Objectives
- Analyze how different pricing affects consumer choices and the marginal rate of substitution between goods.