If, for a consumer, (MU_A/P_A) is greater than (MU_B/P_B), then the consumer A) has an incentive to consume relatively more of good A, which will increase his/her MU_A. B) has an incentive to consume relatively more of good A, which will decrease his/her MU_A. C) has an incentive to consume relatively more of good B, which will increase his/her MU_B. D) has an incentive to consume relatively more of good B, which will decrease his/her MU_B.

Question

Quizplus · Accepted Answer

The given condition implies that the marginal utility per dollar spent on good A is greater than that for good B, suggesting the consumer should consume more of good A. As the consumer consumes more of good A, the marginal utility of consuming additional units of good A (MU_A) will decrease due to the law of diminishing marginal utility.

If, for a Consumer, (MUA/PA) Is Greater Than (MUB/PB), Then

If, for a Consumer, (MU_A/P_A) Is Greater Than (MU_B/P_B), Then