Initially,a consumer is at an optimum.Then the price of X increases.Consequently, A) $MU _ { X }$ / $\mathrm { P } _ { \mathrm { X } }$ $MU _ { Y }$ / $P _ { Y }$ . C) $MU _ { X }$ / $\mathrm { P } _ { \mathrm { X } }$ = $\text { MUY }$ / $P _ { Y }$ . D) $\mathrm { MUX }$ $\text { MUY }$ .

Question

Initially,a consumer is at an optimum.Then the price of X increases.Consequently,
A) $MU _ { X }$ /
$\mathrm { P } _ { \mathrm { X } }$ <
$MU _ { Y }$ /
$P _ { Y }$ .
B) $MU _ { X }$ /
$\mathrm { P } _ { \mathrm { X } }$ >
$MU _ { Y }$ /
$P _ { Y }$ .
C) $MU _ { X }$ /
$\mathrm { P } _ { \mathrm { X } }$ =
$\text { MUY }$ /
$P _ { Y }$ .
D) $\mathrm { MUX }$ >
$\text { MUY }$ .

Quizplus · Accepted Answer

When the price of X increases, the consumer will substitute away from X and towards Y. This means that the marginal utility of X will decrease relative to the marginal utility of Y. Therefore, $MU _ { X }$ /$\mathrm { P } _ { \mathrm { X } }$ <$MU _ { Y }$ /$P _ { Y }$ .

Initially,a Consumer Is at an Optimum MUXMU _ { X }MUX​

Initially,a Consumer Is at an Optimum $MU _ { X }$