Suppose Sally allocates her budget between two goods,A and B.She spends her entire income on a combination of A and B,for which the ratio of the marginal utility of Good A to its price exceeds the ratio of the marginal utility of Good B to its price.She can increase her total utility by buying _____

Question

Quizplus · Accepted Answer

According to the given information, the ratio of the marginal utility of Good A to its price exceeds the ratio of the marginal utility of Good B to its price. This means that Sally is getting relatively more satisfaction per dollar spent on Good A compared to Good B.

To increase her total utility, Sally should allocate more of her budget towards Good A and less towards Good B. This is because the marginal utility per dollar spent on Good A is greater than the marginal utility per dollar spent on Good B. Therefore, increasing consumption of Good A while decreasing consumption of Good B will increase her total utility.

Suppose Sally Allocates Her Budget Between Two Goods,A and B