Assume that an individual consumes only coffee and bagels and that the last cup of coffee yields 12 utils and the last bagel 6 utils. If the price of a cup of coffee is $1 and the price of the bagel is $.50, we can conclude that the:
A) consumer should consume more coffee and fewer bagels.
B) price of coffee is too high relative to bagels.
C) consumer should consume less coffee and more bagels.
D) consumer is in equilibrium.

Question

Quizplus · Accepted Answer

The consumer is maximizing utility per dollar spent since the marginal utility per dollar spent on coffee (12 utils/$1) equals the marginal utility per dollar spent on bagels (6 utils/$0.50), indicating that the consumer is in equilibrium.

Assume That an Individual Consumes Only Coffee and Bagels and That