Unformatted text preview: is. At the consumer’s current
consumption bundle, the consumer is spending all available income, and the marginal rate of
substitution is greater than the slope of the budget constraint. We can conclude that the consumer
(a) is currently maximizing satisfaction.
(b) could increase satisfaction by consuming more X and less Y.
(c) could increase satisfaction by consuming less X and more Y.
(d) could purchase more X and more Y and increase total satisfaction.
. When the price of a normal good decreases,
(a) both the income and substitution e ects encourage the consumer to purchase more of the
good. (b) both the income and substitution e ects encourage the consumer to purchase less of the...
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This document was uploaded on 03/21/2014.
- Spring '14