If Noah thinks the last dollar spent on belts yields more satisfaction than the last dollar spent on socks, and Smith is a utility-maximizing consumer, he should
A) decrease his spending on socks.
B) decrease his spending on socks and increase his spending on belts.
C) increase his spending on belts.
D) increase his spending on socks and decrease his spending on belts.

Question

Quizplus · Accepted Answer

To maximize utility, Smith should allocate his spending such that the marginal utility per dollar is equal across all goods. If the last dollar spent on belts yields more satisfaction than on socks, Smith should decrease spending on socks and increase spending on belts until the marginal utility per dollar is equalized.

If Noah Thinks the Last Dollar Spent on Belts Yields