Suppose the price of A is $20, the price of B is $10, and that the consumer is currently spending all available income. At the consumer's current consumption basket the marginal utility of A is 6 and the marginal utility of B is 4.
A) The consumer is currently maximizing utility.
B) The consumer could increase utility by consuming more of good A and less of good B .
C) The consumer could increase utility by consuming more of good B and less of good A .
D) Nothing can be said about the consumer's utility because we do not know the consumer's income or utility function.

Question

Quizplus · Accepted Answer

The consumer is not maximizing utility because the marginal utility per dollar spent on B (0.4) is higher than that on A (0.3). The consumer could increase utility by consuming more of good B and less of good A.

Suppose the Price of a Is $20, the Price of B