Given that MUX/PX

Question

Given that MUX/PX < MUY/PY,consumers who spend all their income on these two goods

Quizplus · Accepted Answer

If MUX/PX < MUY/PY, buying more Y and less X will increase the marginal utility per dollar spent, thereby increasing total utility. This is the principle of the law of diminishing marginal utility, which states that as one consumes more and more of a good, the marginal utility (additional satisfaction derived from consuming an additional unit) decreases. Hence, consumers should allocate their spending towards goods with higher marginal utility per dollar spent.

Given That MUX/PX < MUY/PY,consumers Who Spend All Their Income