Beginning at the horizontal axis intercept,as a consumer moves upward along the budget line,he will find that
A)the marginal utility per dollar spent on the vertical axis good increases
B)the marginal utility per dollar spent on the horizontal axis good increases
C)the marginal utility per dollar spent on the horizontal axis good decreases
D)the marginal utilities per dollar spent on both goods increase
E)the marginal utilities per dollar spent on both goods remain constant along that particular budget line

Question

Quizplus · Accepted Answer

As the consumer moves upward along the budget line, the amount of the vertical axis good decreases while the amount of the horizontal axis good increases. Since the consumer has a fixed income, he can only increase the horizontal axis good at the expense of the vertical axis good. Therefore, the marginal utility per dollar spent on the horizontal axis good increases because the consumer is getting more satisfaction from each additional dollar spent on that good. The marginal utility per dollar spent on the vertical axis good decreases because the consumer is getting less satisfaction from each dollar spent on that good.

Beginning at the Horizontal Axis Intercept,as a Consumer Moves Upward