For two goods, A and B, the rational spending rule is expressed as: A)MU_A = MU_B. B)MU_A * MU_B = P_A * P_B. C)(MU_A/P_B) = (MU_B/P_A). D)(MU_A/P_A) = (MU_B/P_B).

Question

Quizplus · Accepted Answer

The rational spending rule states that the consumer should allocate their budget in such a way that the marginal utility per dollar spent on each good is equal. In this case, the equation (MU_A/P_A) = (MU_B/P_B) shows that the marginal utility per dollar spent on good A is equal to the marginal utility per dollar spent on good B. Therefore, D is the correct choice.

For Two Goods, a and B, the Rational Spending Rule