Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.

A)4; 3
B)3; 4
C)4; 4
D)3; 3

Question

Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.

A)4; 3 
B)3; 4 
C)4; 4 
D)3; 3

Quizplus · Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 units of Good A and 3 units of Good B because the ratio of marginal utility to price would be 8 for both goods. That is, MUA/PA = 8/1 = 8, and MUB/PB = 24/3 = 8.

Refer to the Accompanying Table