For the two good case,the rational spending rule requires that
A)total expenditures on the two goods be equal.
B)total utility from the two good be equal.
C)average utility from the two goods be equal.
D)the ratio of marginal utility to price be equal for the two goods.

Question

Quizplus · Accepted Answer

The rational spending rule requires consumers to allocate their budget in a way that the ratio of marginal utility to price is equal across all goods. In other words, consumers should spend more on a good if its marginal utility per dollar is higher than that of another good. Therefore, the ratio of marginal utility to price should be the same for the two goods in order to achieve the optimal combination of the two goods.

For the Two Good Case,the Rational Spending Rule Requires That