Asked by Taylor Wenzel on Jul 03, 2024
Verified
(Table: Consumer Equilibrium) Use Table: Consumer Equilibrium.Assume that the price of both goods is $1 per unit,that you consume four units of good X and two units of good Y,and that you are spending all of your income.To maximize utility,assuming that the goods are divisible,you would consume _____ of X and _____ of Y.
A) less;more
B) more;more
C) less;less
D) more;less
Consumer Equilibrium
The state where the allocation of goods and services aligns with consumer preferences, and the marginal utility per dollar spent is equalized across all goods.
- Present an analysis of the consequences of substitution and income variations on the choices and demand by consumers.
- Engage consumer equilibrium information to ascertain the ideal mix of goods for utility maximization under budgetary constraints.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
A
Explanation :
To maximize utility, the consumer should adjust their consumption to equalize the marginal utility per dollar spent on each good. If the consumer is currently consuming four units of good X and two units of good Y, and assuming the marginal utility of good Y is higher than that of good X for the next unit (since the price is the same for both goods), the consumer should consume less of X and more of Y to reach the point where the marginal utility per dollar is equal for both goods. This adjustment will lead to an increase in overall utility.
Learning Objectives
- Present an analysis of the consequences of substitution and income variations on the choices and demand by consumers.
- Engage consumer equilibrium information to ascertain the ideal mix of goods for utility maximization under budgetary constraints.
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