Assume a consumer purchases a combination of goods X and Y such that MU_x / P_x = 20 units of utility per dollar and MU_y / P_y = 10 units of utility per dollar. To maximize utility, the consumers should buy: A) less of X and more of Y. B) less of both X and Y. C) more of both X and Y. D) more of X and less of Y.

Question

Quizplus · Accepted Answer

To maximize utility, consumers should equate the marginal utility per dollar spent across all goods. Since the marginal utility per dollar for X (20 units) is higher than for Y (10 units), the consumer should buy more of X and less of Y to maximize utility.

Assume a Consumer Purchases a Combination of Goods X and Y