As a consumer allocates income between Good A and Good B,total utility is maximized when _____
A)the marginal utility of Good A = the marginal utility of Good B.
B)the marginal utility of Good A = the marginal utility of Good B = 0.
C)the price of Good A = the price of Good B.
D)the marginal utility of Good A/the price of Good A = the marginal utility of Good B/the price of Good B = 0.
E)the marginal utility of Good A/the price of Good A = the marginal utility of Good B/the price of Good B.

Question

Quizplus · Accepted Answer

Total utility is maximized when the consumer allocates income in a way that the marginal utility per dollar spent is equal for both goods. This means that the consumer should allocate income in such a way that the ratio of the marginal utility of each good to its price is equal. Therefore, the best choice is E, where the marginal utility of Good A divided by its price equals the marginal utility of Good B divided by its price.

As a Consumer Allocates Income Between Good a and Good