Goods X and Y

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions.

-Refer to Goods X and Y.Suppose the consumer is spending all of his income buying some of both goods.If the marginal value of X is greater than the relative price of X,how can the consumer improve his level of satisfaction?
A) By purchasing more of both goods.
B) By purchasing more of good X and less of good Y.
C) By purchasing more of good Y and less of good X.
D) The consumer cannot improve his level of satisfaction because he is at the optimum.

Question

Goods X and Y

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions.

-Refer to Goods X and Y.Suppose the consumer is spending all of his income buying some of both goods.If the marginal value of X is greater than the relative price of X,how can the consumer improve his level of satisfaction?
A) By purchasing more of both goods.
B) By purchasing more of good X and less of good Y.
C) By purchasing more of good Y and less of good X.
D) The consumer cannot improve his level of satisfaction because he is at the optimum.

Quizplus · Accepted Answer

If the marginal value of X is greater than the relative price of X, it implies that the consumer is willing to pay more for additional units of X than what it costs. This means that the consumer is not maximizing their satisfaction as they could increase their overall satisfaction by purchasing more of X and less of Y. By doing so, they would be able to satisfy their higher marginal utility for X while decreasing the consumption of Y, which has a lower marginal value. Therefore, the best choice would be to purchase more of good X and less of good Y.