Suppose the price of is $20,the price of is $10,and that the consumer is currently spending all available income.At the consumer's current consumption basket the marginal utility of is 8 and the marginal utility of is 2.

Question

Quizplus · Accepted Answer

The consumer is not maximizing utility because the marginal utilities per dollar spent are not equal. The consumer could increase utility by consuming more of good B and less of good A because the marginal utility per dollar spent on good B is higher than the marginal utility per dollar spent on good A (MU_B/P_B > MU_A/P_A). This would result in a higher total marginal utility, increasing the consumer's overall satisfaction.

Suppose the Price of Is $20,the Price of Is $10,and