In purchasing diamonds and water, a consumer would maximize utility by
A) dividing expenditure equally between those two goods
B) equating the marginal utilities from each of those two goods
C) equating average utility per diamond with average utility per unit of water
D) equating the total utility per diamond with the total utility per unit of water
E) equating marginal utility per dollar spent on each of those two goods

Question

Quizplus · Accepted Answer

A consumer maximizes utility by equating the marginal utility per dollar spent on each good, ensuring the last dollar spent on each provides the same additional satisfaction.

In Purchasing Diamonds and Water, a Consumer Would Maximize Utility