In a world with only two goods X and Y,which of the following statements is NOT true when a consumer faces a corner solution and spends all of her income on good X?
A)The marginal utility per dollar spent on good X is greater than the marginal utility per dollar spent on good Y over the entire amount of her income.
B)For every consumption bundle on her budget line,the marginal utility of good X is greater than the marginal utility of good Y.
C)A sufficiently large decrease in the price of good Y,holding the price of good X constant,can result in an interior solution.
D)The marginal rate of substitution is not equal to the relative price ratio at the corner solution.

Question

Quizplus · Accepted Answer

In a corner solution where all income is spent on good X, it implies that the consumer perceives the marginal utility per dollar spent on good X to be greater than that of good Y, leading to the purchase of only good X. However, statement B is incorrect because it discusses the marginal utility of goods rather than the marginal utility per dollar spent, which is the relevant factor in decision-making under budget constraints. The marginal utility of good X being greater than that of good Y does not necessarily lead to a corner solution if the prices of the goods are considered.

In a World with Only Two Goods X and Y,which