Suppose That a Consumer Is Currently at an Optimum When

question 261

Multiple Choice

Suppose that a consumer is currently at an optimum when consuming goods A and B. Which of the following must be true?

• A) The total utility from A is equal to the total utility from B.
• B) The price of A is equal to the price of B.
• C) The marginal utility of A is equal to the marginal utility of B.
• D) The marginal utility to price ratio of A is equal to the marginal utility to price ratio of B.

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Definitions:

Total Utility

The total satisfaction received by a consumer from consuming a certain quantity of goods or services.

Labor Supply Curve

A graphical representation showing the relationship between the wage rate and the quantity of labor that workers are willing to offer at different wage rates.

Income Effect

The change in an individual's consumption patterns resulting from a change in their real income.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with less expensive ones.