The consumer chooses the bundle of goods that maximizes his utility and spends all his income.Which of the following statements is correct?
A)The marginal utilities of all goods are equal.
B)Expenditures on all goods are equal.
C)The addition to utility of the last unit of the good is equal across all goods.
D)The addition to utility of the last unit of the good per dollar is equal across all goods.

Question

Quizplus · Accepted Answer

When the consumer spends all his income and maximizes his utility, he is at the point where the marginal utility per dollar spent on each good is equal. This means that the addition to utility of the last unit of the good per dollar is equal across all goods. Therefore, choice D is correct. Choices A and C are incorrect because the marginal utilities of all goods do not have to be equal, and the addition to utility of the last unit of the good does not have to be equal across all goods (only the last unit per dollar spent). Choice B is also incorrect because expenditures on each good may be different, as long as the consumer is still maximizing his utility given his budget constraint.

The Consumer Chooses the Bundle of Goods That Maximizes His