Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr. Samuelson

A) is spending too much on slacks and not enough on ties.
B) is spending too much on ties and not enough on slacks.
C) is spending his income in such a way as to maximize his satisfaction.
D) should buy six times as many ties as he does slacks.

Question

Stanley Setiawan · Accepted Answer

Final Answer : A, Explanation :  The principle of consumer equilibrium states that for a consumer to maximize satisfaction, the ratio of the marginal utility to the price of goods should be equal across all goods. Here, the marginal utility per dollar spent on slacks is 18/12 = 1.5, and for ties, it is 5/2 = 2.5. Since the marginal utility per dollar is higher for ties than for slacks, Mr. Samuelson is not maximizing his satisfaction and should spend more on ties and less on slacks.

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