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 consume more of good x and less of good y.

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 consume more of good x and less of good y.

Quizplus · Accepted Answer

This is because the marginal utility per dollar spent is higher for good x than for good y. Therefore, the consumer will get more satisfaction per unit of money spent on good x than on good y, leading them to consume more of good x and less of good y.

Suppose the Marginal Utility of a Unit of Good X