Suppose the marginal utility of a unit of Good X = MU_x,the marginal utility of a unit of Good Y = MU_y,P_x = the price of a unit of Good X,and P_y = the price of a unit of Good Y.If MU_x/P_x MU_y/P_y,the consumer should maintain his or her current allocation of expenditures.

Question

Suppose the marginal utility of a unit of Good X = MU_x,the marginal utility of a unit of Good Y = MU_y,P_x = the price of a unit of Good X,and P_y = the price of a unit of Good Y.If MU_x/P_x > MU_y/P_y,the consumer should maintain his or her current allocation of expenditures.

Quizplus · Accepted Answer

If the marginal utility per dollar spent on Good X is greater than that of Good Y, the consumer should spend more on Good X and less on Good Y to maximize utility, not maintain the current allocation.

Suppose the Marginal Utility of a Unit of Good X