ECONOMICS (CBSE/UGC NET)

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ECONOMICS

CONSUMERS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Oscar spent his entire income on only two goods:good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have:
A
bought more X and more Y
B
bought more X and less Y
C
bought less X and more Y
D
maintained his current consumption
Explanation: 

Detailed explanation-1: -The ratio of marginal utilities to the ratio of their prices can be translated into a comparison of marginal utility per dollar for two items. These two ratios should be equal in the best-case scenario. This indicates that the marginal utility per dollar worth of both commodities should be the same.

Detailed explanation-2: -Combinations of two goods that yield equal levels of utility are shown on an indifference curve. Because all points along an indifference curve generate the same level of utility, economists say that a consumer is indifferent between them.

Detailed explanation-3: -Formula for marginal utility = change in total utility divided by the change in total units consumed.

Detailed explanation-4: -total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

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