Asked by Keivan Golchini on Apr 29, 2024
Verified
A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be
A) $1 per unit.
B) $2 per unit.
C) $3 per unit.
D) $4 per unit.
Marginal Utility
The additional satisfaction or utility a consumer receives from consuming one additional unit of a good or service.
Consumer Equilibrium
occurs when a consumer has allocated their resources in such a way that maximizes their utility, given their budget constraint.
Unit Price
The cost per unit of a product, allowing consumers to compare the value of similar items sold in different quantities or volumes.
- Pinpoint the situations in which a consumer reaches a state of balance.
Verified Answer
MS
Madison SouzaMay 01, 2024
Final Answer :
B
Explanation :
According to the principle of consumer equilibrium (or the law of equi-marginal utility), a consumer allocates their income in such a way that the ratio of the marginal utility to the price of each good is equal. Therefore, MUx/Px = MUy/Py. Given MUx = 40, Px = $5, and MUy = 16, solving for Py gives Py = (MUy * Px) / MUx = (16 * 5) / 40 = $2 per unit.
Learning Objectives
- Pinpoint the situations in which a consumer reaches a state of balance.