Suppose a consumer is purchasing Coke (c)and pretzels (p)in quantities such that he is achieving consumer equilibrium.Then the price of Coke increases.Which of the following will be true? A) MUC/PC = MUP/PP B) MUC/PC MUP/PP C) MUC/PC

Question

Suppose a consumer is purchasing Coke (c)and pretzels (p)in quantities such that he is achieving consumer equilibrium.Then the price of Coke increases.Which of the following will be true?
A) MUC/PC = MUP/PP
B) MUC/PC > MUP/PP
C) MUC/PC < MUP/PP
D) We cannot say for certain what will happen to the MUC/PC relative to the MUP/PP.

Quizplus · Accepted Answer

When the price of Coke increases, the consumer will consume less Coke and substitute it with more pretzels to maintain the same level of satisfaction. Therefore, the marginal utility per dollar spent on Coke (MUC/PC) will decrease while the marginal utility per dollar spent on pretzels (MUP/PP) will increase. This implies that MUC/PC < MUP/PP.

Suppose a Consumer Is Purchasing Coke (C)and Pretzels (P)in Quantities