The MU/P ratio for good X is greater than the MU/P ratio for good Y as a result of a fall in the price of good X. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. In the process, she
A)puts downward pressure on prices.
B)maximizes total utility.
C)acts according to the law of demand.
D)b and c
E)none of the above

Question

Quizplus · Accepted Answer

The consumer maximizes total utility by reallocating dollars to purchase more of good X, which now has a higher marginal utility per dollar spent due to its price drop. This behavior is consistent with the law of demand, which states that consumers will buy more of a good when its price decreases.

The MU/P Ratio for Good X Is Greater Than the MU/P