Suppose a consumer has an income of $16,the price of A is $2,and the price of B is $1.Which combination is on the consumer's budget line?
A) 4A and 9B
B) 5A and 6B
C) 6A and 6B
D) 8A and 8B
The consumer can buy 5A for $10 and 6B for $6,which exhausts the budget constraint of $16.

Question

Quizplus · Accepted Answer

To find the best choice, we need to look for the combination that maximizes the consumer's utility while staying within their budget constraint. If the consumer's utility function is unknown, then we can use the concept of marginal utility to determine the optimal combination.

The marginal utility of A is 1/2 (since the price of A is $2), and the marginal utility of B is 1 (since the price of B is $1). In order to maximize utility, the consumer should allocate their income in such a way that the marginal utility per dollar spent is equal for both goods. In other words, MUa/Pa = MUb/Pb, or 1/2 = 1/1.

This means that the consumer should buy twice as much of good B as good A. The combination that satisfies this condition and is also on the budget constraint is 5A and 6B (5*2 + 6*1 = $16). Therefore, the best choice for the consumer is choice (B).

Suppose a Consumer Has an Income of $16,the Price of a Is