How much utility is gained by spending an additional dollar on good X?
A) It is the average utility of good X divided by the price of good X.
B) MUₓ/Pₓ
C) TUₓ/Pₓ
D) None of the above are correct.

Question

Quizplus · Accepted Answer

To determine the utility gained by spending an additional dollar on good X, we need to use the formula MUₓ/Pₓ (Marginal Utility of X divided by the Price of X). This formula calculates the extra satisfaction gained from one more unit of good X per dollar spent on it. Thus, option B is correct. Option A is incorrect because it merely calculates the average utility of good X divided by its price, which does not reflect the change in utility gained from an additional dollar spent. Option C is incorrect because it calculates the total utility of good X divided by its price, which cannot accurately determine the effect of spending an extra dollar. Option D is incorrect as there is a correct answer.

How Much Utility Is Gained by Spending an Additional Dollar