Question

Imagine that two goods are available to you: apples (X) and pears (Y). You like apples half as much as pears. If your fruit budget is $100 per month, the price of apples is $2 per pound, and the price of pears is $4 per pound, what is the value of the MktRS (market rate of substitution)?

Answer 1

the value of the MktRS (market rate of substitution) is 0

Step-by-step explanation:

The computation of the market rate of substitution is shown below:

Since it is mentioned that

You like apples half as pears

So the equation would be

X = 1 ÷ 2 Y

X ÷ Y = 1 ÷ 2

Now the market rate of substitution of the price is

= $2 ÷ $4

= 1 ÷ 2

So,

= 1 ÷ 2 - 1 ÷ 2

= 0

Hence, the value of the MktRS (market rate of substitution) is 0

The same is to be considered