If John consumes only two goods,A and B,and he is maximizing his utility subject to his budget constraint,
A)MUA/MUB is at a maximum.
B)MUA/MUB equals the ratio of the total utility of A to the total utility of B.
C)MUA/MUB equals 1.
D)MUA/MUB equals zero.
E)MUA/MUB equals the ratio of the price of A to the price of B.

Question

Quizplus · Accepted Answer

When a consumer is maximizing utility subject to a budget constraint, the ratio of marginal utilities of the two goods will be equal to the ratio of their prices (MUA/MUB = PA/PB) in order to obtain the highest level of utility without exceeding the budget constraint. Therefore, the best choice is E.

If John Consumes Only Two Goods,A and B,and He Is