If a consumer allocates her income between two goods,x and y,then she will be in equilibrium when
A)MUx/Px = MUy/Py and she is below her budget constraint
B)MUx = MUy and she has spent all of her income
C)MUx/MUy Px/Py and all of her income is spent
D)MUx/Px = MUy/Py and all of her income is spent
E)MUx = MUy and she is below her budget constraint

Question

If a consumer allocates her income between two goods,x and y,then she will be in equilibrium when
A)MUx/Px = MUy/Py and she is below her budget constraint
B)MUx = MUy and she has spent all of her income
C)MUx/MUy > Px/Py and all of her income is spent
D)MUx/Px = MUy/Py and all of her income is spent
E)MUx = MUy and she is below her budget constraint

Quizplus · Accepted Answer

Equilibrium is reached when the consumer maximizes utility subject to their budget constraint. This can be represented as MUx/Px = MUy/Py and all of their income is spent. This means that the consumer is getting the most satisfaction possible given the prices and their budget, and they have allocated all of their budget towards these goods. Option D is the only choice that accurately represents this concept.

If a Consumer Allocates Her Income Between Two Goods,x and Y,then