While purchasing diamonds and water,a consumer would maximize utility by _____
A)dividing expenditure equally between the two goods.
B)equating the marginal utilities of each good.
C)equating the average utilities of each good.
D)equating the total utility of per dollar spent on each good.
E)equating the marginal utility per dollar spent on each good.

Question

Quizplus · Accepted Answer

Equating the marginal utility per dollar spent on each good is the best choice as it ensures that the consumer is getting the maximum satisfaction for every dollar spent on each good. This means that the consumer should allocate their money so that the last dollar spent on each good gives them an equal increase in satisfaction or utility.

While Purchasing Diamonds and Water,a Consumer Would Maximize Utility by _____