The price of a bottle of beer is $1 and the price of a pizza is $10.  The MRS of bottles of beer for pizza expressed by Karl is 5.  Has Karl chosen the optimal amount of beer? How do you know? If Karl is not maximizing, what should he do to improve his situation?

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Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.