Ron starts out in consumer equilibrium,consuming two goods,X and Y.The price of Y rises.Immediately after the rise in price A)MU_X/P_X MU_Y/P_Y,and then Ron increases his consumption of Y. B)MU_X/P_X MU_Y/P_Y,and then Ron decreases his consumption of Y. C)MU_X/P_X

Question

Ron starts out in consumer equilibrium,consuming two goods,X and Y.The price of Y rises.Immediately after the rise in price A)MU_X/P_X > MU_Y/P_Y,and then Ron increases his consumption of Y. B)MU_X/P_X > MU_Y/P_Y,and then Ron decreases his consumption of Y. C)MU_X/P_X < MU_Y/P_Y,and then Ron increases his consumption of Y. D)MU_X/P_X < MU_Y/P_Y,and then Ron decreases his consumption of Y. E)MU_X/P_X > MU_Y/P_Y,and then Ron increases his consumption of X and Y.

Quizplus · Accepted Answer

When the price of Y rises, the marginal utility per dollar spent on Y decreases, making MU_X/P_X greater than MU_Y/P_Y. To restore equilibrium, Ron will decrease his consumption of Y.

Ron Starts Out in Consumer Equilibrium,consuming Two Goods,X and Y