Suppose the marginal utility of a unit of Good X = MU_x,the marginal utility of a unit of Good Y = MU_y,P_x = the price of a unit of Good X,and P_y = the price of a unit of a Good Y.A utility-maximizing consumer who purchases two goods,X and Y,allocates her budget in such a way that _____ A)MU_x = MU_y. B)TU_x = TU_y. C)MU_x/P_y = MU_y/P_x. D)TU_x/P_y = TU_y/P_x. E)MU_x/P_x = MU_y/P_y.

Question

Quizplus · Accepted Answer

The utility-maximizing consumer will allocate her budget in such a way that the marginal utility per dollar spent on both goods is equal. In other words, she will maximize her utility subject to her budget constraint, which means that MU_x/P_x = MU_y/P_y. Therefore, the correct choice is E.

Suppose the Marginal Utility of a Unit of Good X