Bundle L contains 10 units of good X and 20 units of good Y. Bundle M contains 8 units of good X and 21 units of good Y. The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. Which of the following correctly expresses the marginal rate of substitution of good X for good Y between these two points?
A)The consumer will give up 1 unit of good X to gain 2 units of good Y.
B)The consumer will give up 2 units of good X to gain 1 unit of good Y.
C)The price of good X is twice as large as the price of good Y.
D)The price of good X is half as large as the price of good Y.

Question

Quizplus · Accepted Answer

Since the consumer is indifferent between bundles L and M, the marginal rate of substitution must be the same at both points. To find the marginal rate of substitution, we can look at the ratio of the change in the quantities of X and Y between the two bundles. Moving from bundle L to bundle M, the consumer gives up 2 units of Y (20-18) and gains 1 unit of X (10-8). So the marginal rate of substitution of X for Y is 1/2. Therefore, the consumer is willing to give up 2 units of good X to gain 1 unit of good Y.

Bundle L Contains 10 Units of Good X and 20