Suppose a utility- maximizing person consumes only two goods, hamburgers and milkshakes. Suppose the price of milkshakes rises and all other variables remain constant. As a result, this person will certainly
A) reduce his/her consumption of both milkshakes and hamburgers.
B) not increase his consumption of both milkshakes and hamburgers.
C) purchase more milkshakes and fewer hamburgers.
D) increase his/her consumption of milkshakes.
E) consume more hamburgers and the same amount of milkshakes.

Question

Quizplus · Accepted Answer

When the price of milkshakes rises, the consumer will not increase consumption of both goods because the higher price reduces the marginal utility per dollar spent on milkshakes, leading to a reallocation of spending.

Suppose a Utility- Maximizing Person Consumes Only Two Goods, Hamburgers