-Refer to Exhibit E-3. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true?
A) The marginal-utility-to-price ratio for clothes will decrease.
B) The marginal-utility-to-price ratio for clothes will increase.
C) The quantity demanded of clothes will decrease.
D) There will be no change in the quantity demanded of clothes or amusements.
E) The quantity demanded for amusement goods will remain constant.

Question

-Refer to Exhibit E-3. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true?
A) The marginal-utility-to-price ratio for clothes will decrease. 
B) The marginal-utility-to-price ratio for clothes will increase. 
C) The quantity demanded of clothes will decrease. 
D) There will be no change in the quantity demanded of clothes or amusements. 
E) The quantity demanded for amusement goods will remain constant.

Quizplus · Accepted Answer

When the price of clothes falls, the marginal-utility-to-price ratio for clothes increases, making clothes relatively more attractive to purchase compared to before the price drop.