The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?
A) $4 and $6
B) $6 and $4
C) $8 and $12
D) $16 and $9

Question

Quizplus · Accepted Answer

To reach consumer equilibrium, the consumer would maximize their total utility by allocating their budget between the two goods in such a way that the marginal utility per dollar spent is the same for both goods. Since MUa/Pa = MUb/Pb, we can set up the equation 12/$Pa = 8/$Pb and solve for the ratio of prices. We get Pa/Pb = 2/3. From the answer choices, only option B ($6 and $4) satisfies this condition, as 6/4 = 3/2. If the price of apples were any higher relative to bananas, the consumer would switch from consuming more apples to more bananas due to the higher marginal utility per dollar spent on bananas.

The Marginal Utility of the Last Unit of Apples Consumed