John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli.He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose.As he adjusts to this event, he will consume:
A) more peanut butter and less broccoli.
B) less peanut butter and less broccoli.
C) more peanut butter and more broccoli.
D) less peanut butter and more broccoli.

Question

Quizplus · Accepted Answer

When the price of broccoli rises, John, aiming to maximize his utility, will substitute away from broccoli towards peanut butter, consuming more peanut butter and less broccoli. This substitution effect occurs because the relative price of broccoli has increased, making peanut butter a more attractive option.

John Smedley, a Careful Maximizer of Utility, Consumes Only Two