CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production
A consumer spends on two goods X and Y with prices Rs 5 and Rs 8 respectively. At his current purchase, MUx = 20 utils and MUy = 32 utils. Which statement is correct under the law of equi-marginal utility?
He is in equilibrium. Marginal utility per rupee is 20/5 = 4 for X and 32/8 = 4 for Y. Since the ratios are equal, he cannot raise total satisfaction by shifting spending between the goods, as the law of equi-marginal utility requires.
- AHe is in equilibrium because MUx/Px = MUy/Py = 4Correct
- BHe should buy more X because MUx is lower
- CHe should buy more Y because MUy is higher
- DHe is not in equilibrium because the prices differ
Explanation
MUx/Px = 20/5 = 4 and MUy/Py = 32/8 = 4. The ratios are equal, so satisfaction is maximised. Comparing raw marginal utilities, as in the distractors, ignores prices and is the wrong base.
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