If a consumer purchases a combination of commodities a and b such that MUₐ/Pₐ = 50 and MUb/Pb = 30, to maximize utility, the consumer should buy:
A) less of both a and b.
B) more of both a and b.
C) more of a and less of b.
D) less of a and more of b.

Question

Quizplus · Accepted Answer

The ratio of MU/P for both commodities a and b represents the marginal utility per unit of money spent on each commodity. The ratio for commodity a (MUₐ/Pₐ = 50) is greater than the ratio for commodity b (MUb/Pb = 30), which means that the consumer gets more marginal utility per dollar spent on commodity a compared to commodity b.

To maximize utility, the consumer should allocate more of their budget towards commodity a and less towards commodity b. Buying more of both a and b (choice B) would not be optimal since the marginal utility per dollar spent on commodity b is lower than for commodity a. Similarly, buying less of both a and b (choice A) would also not be optimal since the consumer would not be fully taking advantage of the higher marginal utility per dollar spent on commodity a. Therefore, the best option is to buy more of a and less of b (choice C).

If a Consumer Purchases a Combination of Commodities a and B