Question

A consumer will purchase more of Good$-X$ than Good$-Y$, only when:

• A. $\frac{M{U}_X}{P_X}=M{U}_M$
• B. $\frac{M{U}_X}{P_X}<\frac{M{U}_Y}{P_Y}$
• C. $\frac{M{U}_Y}{P_Y}=M{U}_M$
• D. $\frac{M{U}_X}{P_X}>\frac{M{U}_Y}{P_Y}$

Answer 1

The correct option is D $\frac{M{U}_X}{P_X}>\frac{M{U}_Y}{P_Y}$

Law of diminishing marginal utility states that as consumption increases the marginal utility declines. A consumer will purchase more of good X when marginal utility derived from the consumption of good X is greater than the marginal utility derived from the consumption of good Y. The consumer through consumption of more of Good X decrease the marginal utility of good X, so as to equate the utilities derived from both the goods and achieve consumer's equilibrium.