Assume that the marginal utility from good A is 10 units and that the price of good A is $5 per unit. The marginal utility from good B is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should
A) consume more of good A.
B) consume only good B.
C) consume more of good B.
D) consume neither good A nor good B.

Question

Quizplus · Accepted Answer

To maximize utility, a consumer should allocate spending towards goods where the marginal utility per dollar is highest. In this case, the marginal utility per dollar of good B is higher than that of good A.

For good A, the marginal utility per dollar is 10/5 = 2.
For good B, the marginal utility per dollar is 15/7 ≈ 2.14.

Therefore, the consumer should consume more of good B to achieve the highest level of utility possible, given their budget constraint.

Assume That the Marginal Utility from Good a Is 10