Steven consumes staples and paper clips. He is maximizing his utility in consumption of both goods. The price of paper clips rises. Assuming that diminishing marginal utility applies to both goods, as he adjusts to this event, the marginal utility of staples will _____, and the marginal utility of paper clips will _____.
A) rise; fall
B) fall; rise
C) rise; rise
D) fall; fall

Question

Quizplus · Accepted Answer

When the price of paper clips rises, Steven will consume fewer paper clips, increasing their marginal utility. To maintain utility maximization, he will consume more staples, decreasing their marginal utility.

Steven Consumes Staples and Paper Clips