Consumers should continue to rearrange their consumption of two goods until:
A) the prices of the two goods are equal for the last dollar spent on each good.
B) marginal utility is the same for each good for the last dollar spent on each good.
C) the marginal utility per dollar's worth of the two goods is the same for the last dollar spent on each good.
D) the same amount of each is purchased.

Question

Quizplus · Accepted Answer

The optimal consumption of two goods occurs when the marginal utility per dollar spent is equal for both goods. This is because the consumer will allocate their money in such a way that they get the highest possible level of satisfaction while keeping their expenditure within their budget. If one good has a higher marginal utility per dollar spent than the other, then the consumer will shift their consumption towards that good until the marginal utility per dollar spent is equal for both goods. Therefore, choice C is correct.

Consumers Should Continue to Rearrange Their Consumption of Two Goods