Suppose that MUₓ/Pₓ

Question

Suppose that MUₓ/Pₓ < MUᵧ/Pᵧ.This implies that
A) spending a dollar less on Y and spending a dollar more on X increases utility.
B) spending a dollar less on X, and spending a dollar more on Y increases utility.
C) X is more expensive than Y.
D) Y is more expensive than X.

Quizplus · Accepted Answer

MUₓ/Pₓ represents the marginal utility per dollar spent on X and MUᵧ/Pᵧ represents the marginal utility per dollar spent on Y. If MUₓ/Pₓ < MUᵧ/Pᵧ, this means that the consumer gets more marginal utility per dollar spent on Y compared to X. Therefore, spending a dollar less on X and spending a dollar more on Y increases utility. This is because the consumer is sacrificing a lower marginal utility per dollar spent on X for a higher marginal utility per dollar spent on Y, resulting in an overall increase in utility.

Suppose That MUₓ/Pₓ < MUᵧ/Pᵧ.This Implies That