Faced with two goods to buy, diamonds and silver, a utility-maximizing individual will buy according to the statement that:
A) the price of diamonds equals the price of silver.
B) marginal utility of diamonds equals marginal utility of silver.
C) the price of diamonds divided by marginal utility of silver equals the price of silver divided by marginal utility of diamonds.
D) marginal utility of diamonds divided by price of diamonds equals marginal utility of silver divided by price of silver.

Question

Quizplus · Accepted Answer

A utility-maximizing individual will allocate their budget such that the marginal utility per dollar spent on each good is equal, which is represented by option D.

Faced with Two Goods to Buy, Diamonds and Silver, a Utility-Maximizing