Maxine has a fixed income per month to spend on goods and services,so in allocating her limited income over a set of goods,she should purchase the goods that
A) have the highest utility regardless of price.
B) have the highest marginal utility.
C) provide the most utility per dollar spent.
D) have equal marginal utilities.

Question

Quizplus · Accepted Answer

Maxine's limited income requires her to prioritize the goods that provide the most utility per dollar spent. This means that she should determine the marginal utility of each good and then divide that by the price of the good to determine the utility per dollar spent. By doing this, she can allocate her income in a way that maximizes her overall satisfaction. Option A and B do not take into account the price of the goods, which is an important consideration for someone with a fixed income. Option D assumes that all goods provide equal marginal utility, which is unlikely to be the case in reality.

Maxine Has a Fixed Income Per Month to Spend on Goods