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 $10 of income to spend on both goods.To maximize utility, you would consume ________ units of X and _______ units of Y.
A) 3; 4
B) 4; 3
C) 4; 6
D) 5; 5

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 $10 of income to spend on both goods.To maximize utility, you would consume ________ units of X and _______ units of Y.
A) 3; 4 
B) 4; 3 
C) 4; 6 
D) 5; 5

Quizplus · Accepted Answer

To maximize utility with a budget constraint, a consumer should allocate their income in such a way that the marginal utility per dollar spent on each good is equal. In this case, the marginal utility per dollar spent on X and Y are equal at the point where MUx/Px = MUy/Py. At this point, the consumer will consume 5 units of both X and Y, because that is the point where the budget constraint (the line representing the consumer's total spending) is tangent to the highest possible indifference curve. Therefore, the best choice for maximizing utility with this budget constraint is to consume 5 units of both X and Y.

Use the Following for Questions 61-69