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
A)increase consumption of cheese and decrease consumption of wine, and move to a lower indifference curve.
B)increase consumption of cheese and decrease consumption of wine, and move to a higher indifference curve.
C)increase consumption of wine and decrease consumption of cheese, and move to a higher indifference curve.
D)increase consumption of cheese and decrease consumption of wine, and remain on the same indifference curve.

Question

Quizplus · Accepted Answer

The consumer's marginal rate of substitution (MRS) is 1/2, meaning they are willing to give up 1/2 bottle of wine for 1 pound of cheese. The price ratio is 6/10 or 3/5. Since the MRS (1/2) is less than the price ratio (3/5), the consumer should consume more cheese and less wine to reach a higher indifference curve, where the MRS equals the price ratio.

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