Assume a consumer purchases a combination of goods X and Y such that MU_x / −P_x = 20 units of utility per dollar and MU_y / P_y = 10 units of utility per dollar. To maximize utility, the consumers should buy: A) neither X nor Y. B) less of both X and Y. C) more of both X and Y. D) more of X and less of Y. E) less of X and more of Y.

Question

Quizplus · Accepted Answer

The ratio of MUS/P of good X is twice that of good Y, meaning that the consumer gets more utility per dollar spent on X than on Y. Therefore, the consumer should purchase more of good X and less of good Y in order to maximize their total utility.

Assume a Consumer Purchases a Combination of Goods X and Y