Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of bread would give the consumer 10 extra util, while an extra bottle of wine would give the consumer 60 extra utils. Bread costs 50¢ per loaf, and wine costs $6 per bottle. In this situation, the consumer:
A) could increase utility by buying more bread and less wine.
B) could increase utility by purchasing more wine and less bread.
C) has maximized utility and attained consumer equilibrium.
D) is violating the law of diminishing marginal utility.

Question

Quizplus · Accepted Answer

The marginal utility per cent spent on bread is 10 utils/50¢ = 0.2 utils per cent, while for wine it is 60 utils/600¢ = 0.1 utils per cent. The consumer can increase utility by buying more bread and less wine, as bread provides more utility per cent spent.

Consider a Consumer Who Spends All Income on Only Two