Cordelia is currently spending all of her income on coats and watches. If Cordelia finds that her marginal utility per dollar spent on coats exceeds her marginal utility per dollar spent on watches, what should she purchase in order to reach consumer equilibrium?

Question

Quizplus · Accepted Answer

To reach consumer equilibrium, Cordelia should equalize the marginal utility per dollar spent on both goods. Since the marginal utility per dollar spent on coats is higher, she should buy more coats and fewer watches until the marginal utility per dollar is equal for both.

Cordelia Is Currently Spending All of Her Income on Coats