Figure: Music and Movie Downloads 3 Refer to the Figure

question 119

Multiple Choice

Figure: Music and Movie Downloads 3 Refer to the figure. What is the marginal rate of substitution (MRS) between bundle A and bundle B in this figure?

• A) The MRS is 4.5; the consumer is willing to trade 4.5 movie downloads for 1 music download.
• B) The MRS is 3; the consumer is willing to give up 3 movie downloads for an additional music download.
• C) The MRS is 1.5; the consumer will buy 1.5 times as many music downloads as movie downloads.
• D) The MRS is 1; the consumer faces a one-to-one tradeoff.

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Definitions:

Class Asset

Categories of assets grouped together based on having similar financial characteristics, often used in finance for valuation and risk assessment.

Like-kind Treatment

A tax deferral for exchanges of business or investment properties of similar nature, per Internal Revenue Code Section 1031.

Involuntary Conversion

A loss or destruction of property that is unexpected and not initiated by the property owner, which can have tax implications for gains received from insurance or other compensation.

Qualifying Replacement Property

Property that is acquired to replace a property involved in an involuntary conversion, and meets certain criteria to defer recognition of gain for tax purposes.