in both states If not, which will be higher The marginal rate of substitution of peaches for avocados is the maximum amount of avocados that a person is willing to give up to obtain one additional peach, or A MRS P , where A is the number of avocados and P the number of peaches. When consumers maximize utility, they set their MRSequal to the price ratio, P A p p , where P p is the price of a peach and A p is the price of an avocado. In Georgia, avocados cost twice as much as peaches, so the price ratio is ½ , but in California, the prices are the same, so the price ratio is 1. Therefore, when consumers are maximizing utility (assuming they buy positive amounts of both goods, the marginal rates of substitution will not be the same for consumers in both states. Consumers in California will have an MRS that is twice as large as consumers in Georgia.
