Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of
A)cheese, decrease his consumption of wine, and move to a lower indifference curve.
B)cheese, decrease his consumption of wine, and move to a higher indifference curve.
C)wine, decrease consumption of cheese, and move to a higher indifference curve.
D)cheese, decrease consumption of wine, and remain on the same indifference curve.

Question

Quizplus · Accepted Answer

The consumer should increase consumption of cheese and decrease consumption of wine to equalize the marginal rate of substitution (MRS) with the price ratio. Since the MRS of cheese for wine is less than the price ratio (1/2 < 6/10), the consumer gets more utility per dollar by consuming more cheese and less wine, moving to a higher indifference curve, indicating a higher level of satisfaction.

Suppose at the Consumer's Current Consumption Bundle the Marginal Rate