Cheese is priced at $5 per pound and wine at $10 per bottle.A consumer who enjoys both cheese and wine will not be in consumer equilibrium until the marginal utility of a pound of cheese is:
A) four times that of wine.
B) one-fourth that of wine.
C) two times that of wine.
D) one-half that of wine.

Question

Quizplus · Accepted Answer

Consumer equilibrium is achieved when the ratio of the marginal utility to price is equal for all goods. Therefore, the marginal utility per dollar spent on cheese should equal the marginal utility per dollar spent on wine. Since cheese is $5 per pound and wine is $10 per bottle, the marginal utility of cheese should be half that of wine to maintain equilibrium.

Cheese Is Priced at $5 Per Pound and Wine at $10