What is the marginal rate of substitution, and what role does it play in determining the consumer's optimum choice?
The MRS is the slope of the indifference curve and represents the maximum amount of one commodity the consumer is willing to give up in exchange for one more unit of another commodity. The optimum choice of goods occurs where the budget line is tangent to the highest attainable indifference curve. At that point the MRS equals the slope of the budget line. In other words, the consumer's willingness to trade one good for another just equals the market cost of the trade-off.
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When the Fed sells bonds on a mass scale
A) bonds go to the Fed, and dollars go into the banking system, so the money supply tends to rise. B) bonds go to the Fed, and dollars exit the banking system, so the money supply tends to fall. C) banks have fewer bonds and more dollars, so the money supply tends to rise. D) banks have more bonds and fewer dollars, so the money supply tends to fall.
Nontariff barriers
(a) decrease foreign exchange earnings. (b) reduce the quantity of goods exported. (c) lower the effective price received for exports. (d) all of the above.