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:
A) the marginal utility of peanut butter and of broccoli will rise.
B) the marginal utility of peanut butter and of broccoli will fall.
C) the marginal utility of peanut butter will fall, and the marginal utility of broccoli will rise.
D) the marginal utility of peanut butter will rise, and the marginal utility of broccoli will fall.

Question

Quizplus · Accepted Answer

When the price of broccoli rises, John will adjust his consumption by increasing his consumption of peanut butter and decreasing his consumption of broccoli. As he consumes more and more peanut butter and less and less broccoli, the marginal utility of peanut butter will fall (diminishing marginal utility) and the marginal utility of broccoli will rise (increasing marginal utility). Therefore, choice C is correct.

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