Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Dress is $25 and handbags is $14. i. Suppose the price of a dress increases to $200 and income decreases to $4200. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Dress is $25 and handbags is $14. i. Suppose the price of a dress increases to $200 and income decreases to $4200. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 6P
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Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Dress is $25 and handbags is $14.
i. Suppose the price of a dress increases to $200 and income decreases to $4200. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.
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