As a general rule, utility-maximizing choices between consumption goods occur where the:
A) rise in income has created the greatest utility.
B) price ratio and marginal utilities ratio of two goods is equal.
C) higher-income households have the greatest satisfaction.
D) constraints on budget expenditures has fallen substantially.

Question

Quizplus · Accepted Answer

The utility-maximizing choice between consumption goods occurs where the ratio of the prices of two goods is equal to the ratio of their marginal utilities. This principle is derived from the marginal utility theory, which suggests that consumers allocate their spending so that the last unit of currency spent on each good provides the same level of additional utility, leading to an optimal allocation of their budget.

As a General Rule, Utility-Maximizing Choices Between Consumption Goods Occur