John is currently spending all of his income. For the last unit of Good X consumed John gets 20 utils and for the last unit of Good Y consumed he gets 10 utils. The price of Good X is $10. The price of Good Y is $1. If John wants to maximize his utility he should

Question

Quizplus · Accepted Answer

John should aim to equalize the marginal utility per dollar spent across goods. Currently, he gets 2 utils per dollar from Good X (20 utils/$10) and 10 utils per dollar from Good Y (10 utils/$1), so he should consume more of Good Y and less of Good X to maximize utility.

John Is Currently Spending All of His Income