#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Tom Warren currently has 50 blueberries and 20 peanuts. His marginal rate of substitution of peanuts for blueberries, MRSpb equals 4, and his indifference curves are strictly convex.
Determine whether Warren would be willing to trade at the rate of 3 of his blueberries in exchange for 1 more peanut.
MRSpb = 4 means that Warren would be willing to give up 4 blueberries for 1 peanut, at that point. He clearly would be willing to give up blueberries at a rate less than that, namely, 3-to-1.