Absolute value of marginal rate of substitution

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Kevin has well-behaved preferences and currently has a bundle with positive amounts of two goods. Let x1 and x2 denote the quantities of goods 1 and 2, respectively. Thinking in terms of x1 on the horizontal axis, the absolute value of Kevin’s marginal rate of substitution between the two goods at his current consumption bundle is greater than 3. Using this information, can the theory we have developed so far predict Kevin’s reaction to the following propositions? (a) (20 points) ”I give you a bit of x1 and you give me 3 units of x2 for each unit of x1.” (b) (20 points) ”You give me a little of x1 and I give you 3 units of x2 per unit of x1.”

Reference no: EM131425974

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