If a consumer is initially at an optimum, and then the price of Y increases, then A) / / . C) / = / . D) / / .

Question

If a consumer is initially at an optimum, and then the price of Y increases, then
A) / < / . 
B) / > / . 
C) / = / . 
D) / > / .

Quizplus · Accepted Answer

If the price of Y increases, its relative price increases and the consumer will consume less of it and switch to some other product with a lower relative price. This means that the marginal utility per dollar spent on product Y has decreased, and the consumer is no longer at the optimal consumption point. As a result, the consumer will decrease their consumption of Y until the new marginal utility per dollar spent on Y equals the marginal utility per dollar spent on other products, restoring the consumer's optimal consumption point. Therefore, as the price of Y increases, the quantity demanded of Y decreases, and the consumer will shift towards buying more of other goods. Option B correctly reflects this relationship.

If a Consumer Is Initially at an Optimum, and Then