The relative price rule says that at the optimal consumption bundle the marginal rate of substitution between two goods must be equal to their relative price. This is equivalent to saying that:
A) the marginal utility per dollar is the same for both goods.
B) the marginal utility of each good consumed must be the same.
C) goods should be consumed in the same ratio as their relative price.
D) the marginal rate of substitution is not equal to the ratio of marginal utilities.

Question

Quizplus · Accepted Answer

The relative price rule implies that the consumer should allocate their budget such that the marginal utility per dollar spent is equal across all goods, ensuring maximum utility from their consumption choices.

The Relative Price Rule Says That at the Optimal Consumption