Suppose that utility-maximizing consumers in San Francisco pay three times as much for apples as for peaches.What is the ratio of the marginal utility of apples to the marginal utility of peaches?
A)1/3
B)2/3
C)3
D)none of the above
E)cannot determine without further information

Question

Quizplus · Accepted Answer

According to the law of equi-marginal utility, consumers allocate their income in such a way that the ratio of the marginal utility of a good to its price is equal across all goods. Therefore, if consumers in San Francisco pay three times as much for apples as for peaches, the marginal utility of apples must be three times the marginal utility of peaches to make the ratio of marginal utility to price equal for both goods. This gives us a ratio of the marginal utility of apples to the marginal utility of peaches of 3.

Suppose That Utility-Maximizing Consumers in San Francisco Pay Three Times