Given two goods,X and Y,and their prices,PX and PY a consumer will maximize utility by allocating expenditures such that
A) MUX/PY = MUY/PX.
B) PY/MUX = PX/MUY.
C) MUX/PX = MUY /PY.
D) MUX = PX = MUY = PY = MU$.
E) MUX = MUY = PX = PY = MU$.

Question

Quizplus · Accepted Answer

The consumer's utility will be maximized when the ratio of the marginal utility of good X to its price is equal to the ratio of the marginal utility of good Y to its price. Thus, MUX/PX = MUY/PY is the correct equation that helps allocate expenditures optimally.

Given Two Goods,X and Y,and Their Prices,PX and PY a Consumer