If a consumer is spending all of his/her income in a manner where MU_a / P_a is greater than MU_b / P_b, then the consumer: A) is maximizing his/her utility. B) should increase his/her purchases of B and decrease the purchases of A. C) should spend more money on both goods. D) should spend less money on both goods. E) should increase the purchases of A and decrease the purchases of B.

Question

Quizplus · Accepted Answer

The consumer should increase the purchases of A and decrease the purchases of B to equalize the marginal utility per dollar spent across goods, thereby maximizing utility.

If a Consumer Is Spending All of His/her Income in a Manner