Assume a Consumer Is Currently Purchasing a Combination of Goods

question 32

Multiple Choice

Assume a consumer is currently purchasing a combination of goods, X and Y, that maximizes her utility given her budget constraint, i.e., MRS_X,Y = P_X/P_Y. Now assume that there is a decrease in the price of Y. In this case, to once again maximize her utility, the consumer will want to adjust her purchases of X and Y such that:

• A) the marginal rate of substitution of X for Y, i.e., MRS_X,Y, decreases.
• B) the marginal rate of substitution of X for Y, i.e., MRS_X,Y, stays the same.
• C) the marginal rate of substitution of X for Y, i.e., MRS_X,Y, increases.
• D) none of the above. The consumer will continue to maximize her utility after the price change by continuing to consume the same combination of X and Y.

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