Assume an individual is currently using all of his income to consume two goods — X and Y
If the prices of X and Y are $3 and $8, respectively, and the marginal rate of substitution of X for Y is four, is this individual maximizing his net benefits from consumption? If not, what should he do to increase his total utility?
The individual is not maximizing his total utility because MRSxy = MUx/MUy = 4 > Px/Py = 0.375. The individual should increase his consumption of X and decrease his consumption of Y. This would cause the marginal utility of X to decrease and the marginal utility of Y to increase, causing MRSxy to decline.
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A) less than potential GDP. B) equal to potential GDP. C) greater than potential GDP. D) at the full-employment level of output. E) not comparable to potential GDP.
Something will be rare but not scarce if very little of it exists and
A) its price is high enough that only a few wish to purchase it. B) its price is high enough that no one can afford it. C) no one wants any. D) the quantity supplied is greater than the quantity demanded.