Suppose Mario is in a consumer equilibrium. He then discovers that his marginal utility per dollar spent on energy drinks is greater than his marginal utility per dollar spent on ice cream. He knows then that the price of
A) energy drinks must have increased.
B) energy drinks must have decreased or the price of ice cream must have increased.
C) ice cream must have decreased.
D) the price of energy drinks must have increased or the price of ice cream must have decreased.

Question

Quizplus · Accepted Answer

In a consumer equilibrium, the marginal utility per dollar spent on each good should be equal. If the marginal utility per dollar spent on energy drinks is greater than that for ice cream, it suggests that either the price of energy drinks has decreased (making them relatively more satisfying per dollar) or the price of ice cream has increased (making it relatively less satisfying per dollar), leading to an imbalance in the marginal utility per dollar spent.

Suppose Mario Is in a Consumer Equilibrium