Marginal rate of substitution?

Pixelchic | 19:43 Mon 09th Nov 2009 | Business & Finance

2 Answers

Adam consumes two goods x and y which cost £4 and £2 respectively.
Adams budget is £100. When Adams utility is maximised his marginal rate of substitution between y and x is.
1) 2
2) 0.5.
3)1.
4) 0

Any ideas and explanation would be good???
Thanks :)

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Pixelchic

Question Author

I'm thinking:
Adam would give up 2 of Y (at £2ea) for 1 of X (at £4ea) to maintain the same level of satisfaction, so the marginal rate of substitution is therefore 2.
Any idea if that's right?

factor-fiction

According to Wikipedia (not always reliable), MRSyx = Py/Px.
So does that make the answer 0.5?

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