Question

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

Answer 1

Ewan is consuming a bundle of goods which maximizes his utility. So, if there is a fall in the price of one good then as a result the marginal utility per dollar spent on this good increases.

`(MU)/(P)`

Marginal utility refers to the additional utility that a person can get from the consumption of an additional unit.

Now, Ewan should consume or buy more quantity of this good because of the increase in marginal utility per dollar spent.