A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals:
A) the magnitude of the slope of the indifference curve through that point.
B) one over the magnitude of the slope of the indifference curve through that point.
C) Px/Py
D) Py/Px

Question

Quizplus · Accepted Answer

The consumer maximizes satisfaction when the marginal utility per dollar spent is equal for both goods X and Y. This can be represented as MUx/Px = MUy/Py, which simplifies to MUx/MUy = Px/Py. Therefore, the consumer's valuation of good X, in terms of good Y, is Px/Py.

A Consumer Maximizes Satisfaction at the Point Where His Valuation