Question

If a consumer buys two different goods, the rational spending rule requires that the Multiple Choice

a. total expenditure on the two goods be equal.
b. ratio of total utility to price be equal for the two goods.
c. ratio of average utility to price be equal for the two goods. d. ratio of marginal utility to price be equal for the two goods.

Answer 1

The correct answer is d. ratio of marginal utility to price be equal for the two goods.

The rational spending rule, also known as the consumer equilibrium condition, states that a consumer maximizes utility (satisfaction) when allocating their budget across different goods in a way that the ratio of the marginal utility to price is equal for each good. This means that the consumer should spend their money in a way that the additional satisfaction gained from consuming one more unit of a good (marginal utility) divided by the price of that good is equal for all goods.

So, option d. ratio of marginal utility to price be equal for the two goods is the correct answer.

Step-by-step explanation:

Answer 2

The correct answer is d. ratio of marginal utility to price be equal for the two goods.

The rational spending rule, also known as the consumer equilibrium condition, states that a consumer maximizes utility (satisfaction) when allocating their budget across different goods in a way that the ratio of the marginal utility to price is equal for each good. This means that the consumer should spend their money in a way that the additional satisfaction gained from consuming one more unit of a good (marginal utility) divided by the price of that good is equal for all goods.

So, option d. ratio of marginal utility to price be equal for the two goods is the correct answer.