Steve buys Pepsi at $.60 per can and orange juice at $1.20 per can.In consumer equilibrium,
A)orange juice would yield a higher marginal utility per dollar spent than Pepsi would
B)he will consume twice as much Pepsi as orange juice
C)he will consume more orange juice than Pepsi
D)total utility from orange juice is twice that from Pepsi
E)his last can of orange juice would generate a higher marginal utility than his last can of Pepsi

Question

Quizplus · Accepted Answer

In consumer equilibrium, the consumer will allocate their budget in such a way that the marginal utility per dollar spent is the same for both goods. Assuming Steve's budget allows him to purchase an equal number of cans of Pepsi and orange juice, he will continue to consume each until the marginal utility per dollar spent is equal for both goods. Given the price of each good, it's likely that Steve will purchase more Pepsi than orange juice. This is because the marginal utility per dollar spent on orange juice would be higher than for Pepsi, meaning that the last unit of orange juice consumed would give Steve more utility than the last unit of Pepsi. Therefore, Steve's last can of orange juice would generate a higher marginal utility than his last can of Pepsi.

Steve Buys Pepsi at