The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________.
A)falls, rises
B)rises, falls
C)rises, stays constant
D)falls, stays constant
E)stays constant, rises

Question

Quizplus · Accepted Answer

When a consumer reallocates spending from good Y to good X, the marginal utility (MU) of good X will fall due to the law of diminishing marginal utility, as more of good X is consumed. Conversely, consuming less of good Y will cause its marginal utility to rise, as less consumption typically leads to an increase in the marginal utility of the remaining units.

The MU/P Ratio for Good X Is Greater Than the MU/P