If MU_x/P_x exceeds MU_y/P_y, then a household can increase its utility by spending more on X and less on Y.

Question

Quizplus · Accepted Answer

The given expression compares the marginal utility per dollar spent on good X (MU_x/P_x) to that on good Y (MU_y/P_y). If the utility per dollar spent on X is higher than that on Y, then reallocating spending from Y to X will increase the overall utility of the household, according to the principle of equal marginal utility per dollar spent.

If MUx/Px Exceeds MUy/Py, Then a Household Can Increase Its

If MU_x/P_x Exceeds MU_y/P_y, Then a Household Can Increase Its