Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the price of goods A and B, respectively. Assume that for a given consumer MUA and MUB are equal to each other, and PA is greater than PB. In this case, the consumer is better off if he consumes
A)more of good A and less of good B.
B)less of good A and more of good B.
C)equal amount of goods A and B.
D)good B only.
E)neither good A nor good B.

Question

Quizplus · Accepted Answer

Since MUA=MUB and PA>PB, it means that the consumer is willing to pay more for each additional unit of A than B. Therefore, the consumer should consume less of A and more of B to maximize their utility. In other words, the consumer should allocate their budget towards purchasing more units of the relatively cheaper good, which is B in this case. Hence, the answer is B, less of good A and more of good B.

Let MUA and MUB Stand for the Marginal Utility of Goods