Let MU equal marginal utility and P equal price. If the MU of lattes per dollar spent on a latte is less than the MU of iced tea per dollar spent on an iced tea, the consumer
A) is maximizing utility.
B) should spend more on iced tea and less on lattes.
C) should spend more on lattes and less on iced tea.
D) is maximizing marginal utility.

Question

Quizplus · Accepted Answer

To maximize utility, a consumer should allocate their spending so that the marginal utility per dollar spent is equal across all goods. If the MU per dollar spent on lattes is less than that for iced tea, the consumer should spend more on iced tea and less on lattes to equalize the MU per dollar spent across both goods.

Let MU Equal Marginal Utility and P Equal Price