Michael consumes only steak and lobster. Suppose that the price of steak rises. After Michael is back at equilibrium, compared to the situation when steak was cheaper, the marginal utility from the last steak will
A) have increased.
B) not have changed.
C) have decreased.
D) not be comparable with the marginal utility before the price hike.

Question

Quizplus · Accepted Answer

When the price of steak rises, Michael will consume less steak to maximize his utility given his budget constraint. As a result, the marginal utility of the last steak consumed will increase because he will only consume steak until the marginal utility per dollar spent on steak equals that of lobster, which means the marginal utility of steak must rise to compensate for the higher price.

Michael Consumes Only Steak and Lobster