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Consider an economy with two goods, Bread

Question # 00510497
Subject: Economics
Due on: 04/11/2017
Posted On: 04/11/2017 09:32 AM

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Consider an economy with two goods, Bread (B) and Milk (M). Anna likes both goods and her marginal rate of substitution between the two goods is diminishing. The price of M is 3 and the price of B is 1. At the current consumption basket Anna exhausted her income and her marginal rate of substitution of Milk for Bread is 2.

(a) Can we conclude that Anna currently is not at her optimum consumption if her current bundle contains positive amounts of both goods? Provide intuitive explanation.

(b) Reconsider part (a) for the bundle that contains only Bread.

Tags bread goods economy consider goods anna bread price current contains bundle substitution consumption milk marginal rate positive economy amounts intuitive reconsider explanation provide currently consider likes diminishing basket exhausted conclude income optimum

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Consider an economy with two goods, Bread

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