Exhibit 6-6 Marginal utility for data for clothes and amusement

Refer to Exhibit 6-6. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true ?
A) The marginal-utility-to-price ratio for clothes will decrease.
B) The marginal-utility-to-price ratio for clothes will increase.
C) The quantity demanded of clothes will decrease.
D) The quantity demanded for amusement goods will remain constant.

Question

Exhibit 6-6 Marginal utility for data for clothes and amusement

Refer to Exhibit 6-6. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true ?
A) The marginal-utility-to-price ratio for clothes will decrease. 
B) The marginal-utility-to-price ratio for clothes will increase. 
C) The quantity demanded of clothes will decrease. 
D) The quantity demanded for amusement goods will remain constant.

Quizplus · Accepted Answer

When the price of clothes falls to $4, the marginal-utility-to-price ratio for clothes will increase. This is because the marginal utility of clothes remains constant at 10 as the price falls from $5 to $4, while the price decreases. Therefore, the marginal-utility-to-price ratio for clothes will increase. As the marginal-utility-to-price ratio for clothes increases, consumers will demand more clothes until that ratio equalizes. This may lead to an increase in the quantity demanded of clothes. The quantity demanded for amusement goods will remain constant since their price has not changed.

Exhibit 6-6 Marginal Utility for Data for Clothes and Amusement