Suppose That the Ratio of Marginal Utility to Price for Good

question 64

Multiple Choice

Suppose that the ratio of marginal utility to price for good $A$ is 10 , and the ratio of marginal utility to price for good $B$ is 5 . Assume that for her current consumption of goods $A$ and $B$ the consumer is experiencing diminishing marginal utility for each good. In order for this consumer to be at her utility maximizing point, she should:

• A) consume less \(A\) and more \(B\).
• B) consume more \(A\) and less \(B\).
• C) consume more \(A\) and more \(B\).
• D) do nothing - the consumer is already in equilibrium.

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Definitions:

Higher Prices

Charging more for goods or services, often due to increased demand, higher costs of production, or added value.

Substitute Products

Products for which changes in demand are negatively related; that is, a percentage increase in the quantity demanded for product A results in a percentage decrease in the quantity demanded for product B.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, often influencing pricing strategies.

Demand

The quantity of a good or service that consumers are willing and able to purchase at a given price over a specified period.