Question

At the optimal consumption bundle, the marginal rate of substitution of leisure in period 1 in terms of consumption in period 1 is equal to:

a. 1
b. w_1
c. W_2
d. 1+r
e. 1 /(1+r)
f. (1+r) w_{-1} / w_2

Answer 1

The marginal rate of substitution of leisure in period 1 in terms of consumption in period 1 is equal to the ratio of the prices of leisure and consumption in period 1, represented by MRS = w_1 / w_2.

Step-by-step explanation:

The marginal rate of substitution of leisure in period 1 in terms of consumption in period 1 is equal to the ratio of the prices of leisure and consumption in period 1. This is represented by the equation MRS = w_1 / w_2, where w_1 is the price of leisure and w_2 is the price of consumption. Therefore, the correct answer is b. w_1.