Introduction to Economics 1 Deneme Sınavı Sorusu #1214086
Given the limited budget, the consumers choose a combination of goods that will maximize the satisfaction they can achieve. Which of the following statements correctly represent the maximizing market basket that must satisfy the two conditions?
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satisfaction is maximized when the marginal rate of substitution (of good X and Y) is bigger than the ratio of the prices (of X and Y). |
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satisfaction is maximized when the marginal rate of substitution (of good X and Y) is smaller than the ratio of the prices (of X and Y). |
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satisfaction is maximized when the marginal rate of substitution (of good X and Y) is equal to the ratio of the prices (of X and Y). |
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satisfaction is maximized when the marginal rate of substitution (of good X and Y) is equal to zero. |
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satisfaction is maximized when the ratio of the prices (of X and Y) is equal to 1. |
CONSUMER PREFERENCES
Given the limited budget available to them, consumers choose a combination of goods that will maximize the satisfaction they can achieve. The maximizing market basket must satisfy two conditions:
- It must be located on the budget line.
- Must give the consumer the most preferred combination of goods and services.
Recall, the slope of an indifference curve is: MRS = – (?Y / ?X)
The slope of the budget line is Px/Py.
Therefore, it can be said that satisfaction is maximized where:
MRS = – (?Y / ?X) = Px/Py
It can be said that satisfaction is maximized when the marginal rate of substitution (of good X and Y) is equal to the ratio of the prices (of X and Y).
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