Given a fixed level of spending, you will maximize utility when the:
A) total satisfaction from both goods is maximized regardless of cost.
B) marginal satisfactions are maximized.
C) ratios of the total utilities to their prices are equal.
D) ratios of the marginal utilities to their prices are equal.

Question

Quizplus · Accepted Answer

To maximize utility given a fixed budget, consumers should allocate their spending so that the marginal utility per dollar spent is equal across all goods. This is known as the equimarginal principle or the law of equi-marginal utility.

Given a Fixed Level of Spending, You Will Maximize Utility