The price of Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic as
sumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true? A. Jack is at a corner solution and is maximizing his utility. B. Jack could increase his utility by buying fewer pencils and fewer pens. C. Jack could increase his utility by buying more pencils and fewer pens. D. Jack could increase his utility by buying more pens and fewer pencils. E. Jack could increase his utility by buying more pencils and more pens. good A goes up. As a result, the demand for good B shifts to the left. From this, we can infer that A. goods A and B are complements. B. good A is used to produce good B. C. good B is used to produce good A. D. goods A and B are substitutes. E. none of the above.
The correct option is C: Jack could increase his utility by buying more pencils and fewer pens.
Explanation:
The marginal rate of substitution or MRS is defined as the rate at which one gives up a reasonable amount of one product to exchange for another products, and still maintains the same utility level. For Jack to maintain the same level of utility, he needs to more pencil and fewer pens to maintain an equilibrium in his purchase of pens and pencils.
The 1920s is the decade when America's economy grew 42%. Mass production spread new consumer goods into every household. The modern auto and airline industries were born. The U.S. victory in World War I gave the country its first experience of being a global power.
