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A consumer’s marginal rate of substitution (MRSxy) is always 4. The price of Good X is...

A consumer’s marginal rate of substitution (MRSxy) is always 4. The price of Good X is $10 and the price of Good Y is $2. Which of the following will be true?

a. The consumer will only buy Good Y.

b. The consumer will only buy Good

c. The consumer will spend all her income and buy some of Good X and some of Good Y.

d. The consumer's expenditures on Good X will be four times more than her expenditures on Good

e. The consumer will neither buy Good X or Y.
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Answer #1

As MRS is fixed always = 4

This means that consumers will spend good X four times the value he spends at good Y.

Therefore, the correct answer is option (D)

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