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Suppose that there are two goods, pork buns (X) and egg tarts (Y). Assuming Rui's preferences...

Suppose that there are two goods, pork buns (X) and egg tarts (Y). Assuming Rui's preferences exhibit a diminishing marginal rate of substitution, if the slope of Rui's indifference cuve is -2 when she has 6 pork buns and 6 egg tarts, which of the following is true?

A) Rui would prefer to have 5 pork buns and 7 egg tarts.

B) Rui would be indifferent to having 7 pork buns and 7 egg tarts.

C) Rui would prefer to have 7 pork buns and 5 egg tarts.

D) Rui would prefer to have no pork buns and 12 egg tarts.

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Answer #1

Current consumption is 6 units of pork buns and 6 egg tarts.

Slope of Rui's Indifference curvs is -2 which means Rui's is willing to forego 2 units of egg tarts for 1 unit of pork buns if pork buns is on X-axis and egg tarts on Y-axis. It means consumer like pork buns such that she is willing to forego more units of egg tarts than pork buns. Thus, consumer will prefer more units of pork buns and less egg tarts than current consumption because to get more pork buns she have to forego some units of egg tarts. Option C is correct.

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