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Chapter 6: Problem 8

A state of consumer equilibrium for goods consumed prevails when the a. marginal utility of all goods is the same for the last dollar spent for each good. b. marginal utility per dollar's worth of two goods is the same for the last dollar spent for each good. c. price of two goods is the same for the last dollar spent for each good. d. marginal cost per dollar spent on two goods is the same for the last dollar spent for each good.

Short Answer

Expert verified
A state of consumer equilibrium for goods consumed prevails when the marginal utility per dollar's worth of two goods is the same for the last dollar spent for each good. This is expressed mathematically as \( \frac{MU_{1}}{P_{1}} = \frac{MU_{2}}{P_{2}} \), where \(MU_{i}\) is the marginal utility of good i, and \(P_{i}\) is the price of good i. The correct answer is option b.

Step by step solution

01

Option A: Marginal Utility of All Goods is the Same

This statement is not accurate, as in consumer equilibrium, it's not the marginal utility of all goods that should be the same, but rather the marginal utility per dollar spent on each good.
02

Option B: Marginal Utility per Dollar's Worth of Two Goods is the Same

This statement is correct. In consumer equilibrium, a consumer allocates their budget in such a way that the marginal utility per dollar spent on each good is equal. Mathematically, it can be expressed as: \( \frac{MU_{1}}{P_{1}} = \frac{MU_{2}}{P_{2}} \) where \(MU_{i}\) is the marginal utility of good i, and \(P_{i}\) is the price of good i.
03

Option C: Price of Two Goods is the Same

This statement is not accurate, as consumer equilibrium doesn't require the prices of the two goods to be the same. Instead, it requires the marginal utility per dollar spent on each good to be equal.
04

Option D: Marginal Cost per Dollar Spent on Two Goods is the Same

This statement is not accurate, as consumer equilibrium is concerned with the marginal utility per dollar spent on each good, not the marginal cost per dollar spent. As a result, the correct statement regarding consumer equilibrium for goods consumed is: b. Marginal utility per dollar's worth of two goods is the same for the last dollar spent for each good.

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Most popular questions from this chapter

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