When income is allocated to two goods, x and y, consumer equilibriumoccurs when
A)MUx = MUy
B)MUx = MUy, and the budget is exhausted
C)MUx/Py = PUx/Py
D)MUx/Py = PUx/Py, and some money is not spent
E)MUx/Py = PUx/Py, and the budget is exhausted

Question

Quizplus · Accepted Answer

Consumer equilibrium occurs when the marginal utility per dollar spent is equal for the two goods, which is expressed as MUx/ Px = MUy/Py. This also ensures that the budget is exhausted. Therefore, the correct choice is E, which satisfies both conditions for consumer equilibrium.

When Income Is Allocated to Two Goods, X and Y