The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3

-Consumers should allocate their income so that the marginal utility associated with the:
A)first dollar spent is equal for all goods.
B)last dollar spent is equal for all goods.
C)last dollar spent is lower for high-priced items than for low-priced items.
D)first dollar spent is greater for high-priced items than for low-priced items.
E)first dollar spent is less for high-priced items than for low-priced items.

Question

The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3
 
-Consumers should allocate their income so that the marginal utility associated with the:
A)first dollar spent is equal for all goods. 
B)last dollar spent is equal for all goods. 
C)last dollar spent is lower for high-priced items than for low-priced items. 
D)first dollar spent is greater for high-priced items than for low-priced items. 
E)first dollar spent is less for high-priced items than for low-priced items.

Quizplus · Accepted Answer

The principle of equal marginal utility per dollar spent states that consumers should allocate their income in such a way that the marginal utility per dollar spent on each good is the same. This means that the last dollar spent on each good should provide the same level of utility. In other words, the marginal utility of the last dollar spent should be equal for all goods. Therefore, choice B is the correct answer.

The Below Table Shows the Average Utility (In Utils) Obtained