Ans: Given they have same income and face same prices, each has same budget set, so both would purchase on same budget line(2 pts) This is consistent with purchasing different bundles if they have different preferences(2 pts) However, each must choose a bundle where MRS = price ratio.(2 pts) Since face same price ratio, must have identical MRS. (2 pts) Note: might also purchase different bundles if have identical preferences, if beads and henna are perfect substitutes for both, andBL coincides with an IC. Do not need this, but can get 0.5 bonus points if they state it. Economics 203 (F01), 2006; midterm 1 Page 1 of 5
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