Two individuals, Fernando (F) and Gerardo (G) have the same number of books and

Question

Two individuals, Fernando (F) and Gerardo (G) have the same number of books and records each. The marginal relations of substitution between Disks (D) and Books (B) for Fernando is, RMSFDB =3 while for Gerardo it is RMSGDB = 2 . This means that:

a) That Fernando values books relatively more than Gerardo.

b) That neither of them can increase their satisfaction through the exchange.

c) That the two individuals value books and records in the same way.

d) That Gerardo values books relatively more than Fernando.

Explain

Explanation / Answer

Given that the marginal relations of substitution between Disks (D) and Books (B) for Fernando is 3 while for Gerardo it is 2. It implies that for 1 Disk, Fernando is willing to sacrifice 3 books while Gerardo can sacrifice only 2 books, Hence this implies hat Gerardo cannot sacrifice as many books as Fernando can and so he values books relatively more than Fernando.

Option D is correct

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