Michael Kawamura, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream.He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of peanut butter fell.As he adjusts to this event:
A) the marginal utility of peanut butter and of ice cream will rise.
B) the marginal utility of peanut butter and of ice cream will fall.
C) the marginal utility of peanut butter will fall, and the marginal utility of ice cream will rise.
D) the marginal utility of peanut butter will rise, and the marginal utility of ice cream will fall.

Question

Quizplus · Accepted Answer

When the price of peanut butter falls, Michael will have the ability to consume more peanut butter without sacrificing any ice cream. This means the marginal utility of peanut butter will decrease because he can consume more of it without reducing his consumption of ice cream. On the other hand, the marginal utility of ice cream will rise because Michael will now be able to consume more of it without giving up any peanut butter. Therefore, the correct answer is C, the marginal utility of peanut butter will fall, and the marginal utility of ice cream will rise.

Michael Kawamura, a Careful Maximizer of Utility, Consumes Only Two