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 should maintain his or her current allocation of expenditures.

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 should maintain his or her current allocation of expenditures.

Quizplus · Accepted Answer

If MUx/Px > MUy/Py, the consumer should reallocate expenditures to buy more of good x and less of good y to maximize utility.

Suppose the Marginal Utility of a Unit of Good X