Consumers in Washington pay twice as much for avocado as they do for cherries. However, in...

Consumers in Washington pay twice as much for avocado as they do for cherries. However, in California, avocados and cherries are the same price.

What are consumers’ budget lines in these two states? Note: avocados are on the x-axis, cherries are on the y-axis

If consumers in both states maximize utility, what will be true about the MRS of cherries for avocados?

+ MRS will be greater in Washington

+ MRS will be greater in California

+ MRS will be the same in Washington and California

Expert Solution

The budget lines are obtained by using price ratio in the two states as slopes. Also, when maximising utility, MRS is greater in Washington. The detailed explanation is given in following 2 images:

Rahul Sunny answered 2 years ago

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