Given two goods,X and Y,their prices,PX and PY,a consumer is in equilibrium when the last dollar spent on X yields
A) zero marginal utility for Y.
B) the same marginal utility as if all the money were spent on Y.
C) a smaller marginal utility than the last dollar spent on Y.
D) the same marginal utility as the last dollar spent on Y.
E) none of the above

Question

Quizplus · Accepted Answer

In order to be in equilibrium, the consumer must have allocated their budget in such a way that the marginal utility per dollar spent on each good is the same. This means that the last dollar spent on good X must yield the same marginal utility as the last dollar spent on good Y. Therefore, the correct answer is D.

Given Two Goods,X and Y,their Prices,PX and PY,a Consumer Is