If a consumer buys two goods, the rational spending rule requires that the:
A)total expenditure on the two goods be equal.
B)ratio of total utility to price be equal for the two goods.
C)ratio of average utility to price be equal for the two goods.
D)ratio of marginal utility to price be equal for the two goods.

Question

Quizplus · Accepted Answer

The rational spending rule suggests that a consumer should allocate their limited income between goods in such a way that the marginal utility obtained from each good is proportional to its price. Therefore, the ratio of marginal utility to price (MU/P) should be equal for both goods. This ensures that the consumer is obtaining the most satisfaction possible from their spending.

If a Consumer Buys Two Goods, the Rational Spending Rule