Question

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should do what ?

Answer 1

Answer: In that case, consumer need to buy more units of Y and less units of X.

Explanation:

Since we have given that

Marginal utility of X = 10

Marginal utility of Y = 8

Unit price of X = $5

Unit price of Y = $2

So, we know that

`(MU_x)/(P_x)=(10)/(5)=2`

and

`(MU_y)/(P_y)=(8)/(2)=4`

Since
`(MU_x)/(P_x)<(MU_y)/(P_y)`

In that case, consumer need to buy more units of Y and less units of X.

So, MU of y becomes lower and MU of x becomes higher until they becomes equal to each other to attain consumer's equilibrium.