Use the following for questions 61-69.

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $7 of income to spend on both goods.To maximize utility, you would consume ________ units of X and _______ units of Y.
A) 2; 5
B) 3; 4
C) 4; 3
D) 5; 2

Question

Use the following for questions 61-69.
  
-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $7 of income to spend on both goods.To maximize utility, you would consume ________ units of X and _______ units of Y.
A) 2; 5 
B) 3; 4 
C) 4; 3 
D) 5; 2

Quizplus · Accepted Answer

To maximize utility with a limited budget spent on two goods, the consumer should allocate their spending so that the marginal utility per dollar spent on each good is equal. This is known as the principle of equal marginal utility per dollar. Looking at the graph, the consumer should consume 4 units of good X and 3 units of good Y to achieve consumer equilibrium, where the budget line is tangent to the highest possible indifference curve. This allocation of spending will maximize the consumer's total utility given their income and the prices of the goods. Therefore, the answer is C.

Use the Following for Questions 61-69