If a consumer is choosing the bundle of goods that maximizes utility subject to a budget constraint, then
A) the rate at which income affects the utility-maximizing choice is equal for all goods.
B) the rate at which the consumer is willing to substitute between goods is equal to the market rate of exchange.
C) the ratio of marginal utility to price is equal for all goods.
D) both b and c
E) all of the above

Question

Quizplus · Accepted Answer

Option B refers to the concept of the law of demand, which states that as the price of a good increases, the quantity demanded of that good decreases, and as the price of a good decreases, the quantity demanded of that good increases. Therefore, the rate at which the consumer is willing to substitute between goods is equal to the market rate of exchange. The option C refers to the concept of the marginal utility theory, which implies that the consumer maximizes utility when the ratio of the marginal utility of a good to its price is equal to the ratio of the marginal utility of every other good to its price. Therefore, the ratio of marginal utility to price is equal for all goods. Thus, both B and C are correct. Therefore, the best choice is D.

If a Consumer Is Choosing the Bundle of Goods That