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= price of a unit of good x, and P_y= price of a unit of a good y. If MU_x/P_x MU_y/P_y, the consumer can increase utility by buying more of good x.

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= price of a unit of good x, and P_y= price of a unit of a good y. If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x.

Quizplus · Accepted Answer

This is because the marginal utility per dollar spent on good x is higher than the marginal utility per dollar spent on good y. Therefore, the consumer can increase their overall utility by allocating more of their budget towards good x.

Suppose the Marginal Utility of a Unit of Good X