If a consumer derives more utility by spending an additional $1 on good X,rather than on good Y: A)MU_x/P_x MU_y/P_y. B)MU_x/P_x = MU_y/P_y. C)MU_x/P_x P_y/MU_y.

Question

If a consumer derives more utility by spending an additional $1 on good X,rather than on good Y: A)MU_x/P_x > MU_y/P_y. B)MU_x/P_x = MU_y/P_y. C)MU_x/P_x < MU_y/P_y. D)P_x/MU_x > P_y/MU_y.

Quizplus · Accepted Answer

This statement can be rewritten in terms of marginal utility per dollar (MUD). If the consumer derives more utility from spending an additional $1 on good X than on good Y, then MUDx > MUDy. Using the formula for MUD: MUS/PS, and assuming a constant budget (S1U1B0), we can rewrite the inequality as MUSx/PSx > MUSy/PSy. Therefore, choice A is the correct answer.

If a Consumer Derives More Utility by Spending an Additional