Utility is maximized when:
A) the marginal utility of every good consumed times its price is everywhere equal.
B) total outlays equal a varying budget and when the ratios of marginal utilities to prices are equal for all goods and services.
C) total outlays equal a given budget and the ratios of marginal utilities to prices are equal for all goods and services.
D) A and C occur.

Question

Quizplus · Accepted Answer

Utility is maximized when the consumer spends their budget in such a way that the ratio of the marginal utility of each good to its price is the same for all goods. This condition is satisfied when total outlays equal a given budget and the ratios of marginal utilities to prices are equal for all goods and services. Option C states this condition correctly. Option A is incorrect because it implies that every unit of every good should have the same price, which is not a realistic assumption. Option B is incorrect because it states that the budget is varying, which is not necessarily the case for utility maximization. Option D is redundant as it includes both A and C.

Utility Is Maximized When