Question

If Mux/Px < MUy/Py, then A. Spending a dollar less on Y and a dollar more on X increases utility B. Spending a dollar less on X and a dollar more on Y increases utility C. The substitution effect will increase the quantity of the good demanded while the income effect t will decrease the quantity of the good demanded D. The substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded

Answer 1

B. Spending a dollar less on X and a dollar more on Y increases utility

Step-by-step explanation:

Consumer's utility maximising equilibrium in case of two commodities is when Marginal Utility on per unit currency spent on both goods is equal.

MU X / P X = MU Y / P Y

If MU X / P X < MU Y / P Y : Consumer gets more additional satisfaction per unit currency spent, from good Y than good X

So in this case, spending a dollar less on X & a dollar more on Y increases utility.