As a consumer allocates income between good A and good B, total utility is maximized when:
A)marginal utility of A = marginal utility of B
B)marginal utility of A = marginal utility of B = 0
C)price of A = price of B
D)marginal utility of A/price of A = marginal utility of B/price of B = 0
E)marginal utility of A/price of A = marginal utility of B/price of B

Question

As a consumer allocates income between good A and good B, total utility is maximized when:​
A)marginal utility of A = marginal utility of B
B)marginal utility of A = marginal utility of B = 0
C)price of A = price of B
D)marginal utility of A/price of A = marginal utility of B/price of B = 0
E)marginal utility of A/price of A = marginal utility of B/price of B

Quizplus · Accepted Answer

The consumer maximizes total utility by allocating income in such a way that the marginal utility per dollar spent on each good is equal. This means that the ratio of the marginal utility of a good to its price should be equal to the ratio of the marginal utility of the other good to its price. Therefore, the best choice is E, where the marginal utility of A divided by the price of A is equal to the marginal utility of B divided by the price of B.

As a Consumer Allocates Income Between Good a and Good