Question

Which of the following equations expresses consumer equilibrium when a consumer allocates his or her income between two goods, X and Y?

a. Marginal utility of X/Price of X = Marginal utility of Y/Price of Y.
b. Marginal utility of X × Price of X = Marginal utility of Y × Price of Y.
c. Marginal utility of X/Price of Y = Marginal utility of Y/Price of X.
d. Marginal utility of X + Marginal utility of Y = Price of X + Price of Y.

Answer 1

The equation that expresses consumer equilibrium when a consumer allocates their income between two goods, X and Y, is a. Marginal utility of X/Price of X = Marginal utility of Y/Price of Y. The option (A) is correct.

Step-by-step explanation:

The equation that expresses consumer equilibrium when a consumer allocates their income between two goods, X and Y, is Marginal utility of X/Price of X = Marginal utility of Y/Price of Y. This equation states that the ratio of the marginal utility of good X to the price of good X should be equal to the ratio of the marginal utility of good Y to the price of good Y.

This condition ensures that the consumer is allocating their income in a way that maximizes their utility. For example, if the marginal utility of X divided by the price of X is higher than the marginal utility of Y divided by the price of Y, the consumer should allocate more of their income towards good X to increase their overall utility. Therefore, option (A) is correct.