In spending all his income, the consumer chooses the bundle of goods that maximizes his utility. Which of the following statements will be correct?
A) The marginal utilities of all goods are equal.
B) Expenditures on all goods are equal.
C) The addition to utility of the last unit of the good is equal across all goods.
D) The addition to utility of the last unit of the good per dollar is equal across all goods.

Question

Quizplus · Accepted Answer

If the consumer is spending all his income, he is maximizing his utility by choosing the bundle of goods where the marginal utility per dollar spent on each good is equal. This means that the addition to utility of the last unit of the good per dollar is equal across all goods. Therefore, choice D is the correct answer. Choices A and C are incorrect because they assume that the marginal utility of all goods is equal, which may not necessarily be the case. Choice B is also incorrect because the consumer may choose to spend more on goods that give him higher utility, and less on goods that give him lower utility.

In Spending All His Income, the Consumer Chooses the Bundle