A consumer spends their income on books and records. Given their current level of income, and...
A consumer spends their income on books and records. Given their current level of income, and the current price of books and records, the consumer maximizes their utility by choosing three books and two records. If the marginal utility of the third book equals the marginal utility of the tenth record, what can you conclude about the relationship between the price of books and the price of records? Briefly explain your answer. (Hint: consider the fact that we maximize our utility by equalizing the Marginal Utility/Price across both goods)
Homework Answers
According to the law of demand, the number of units consumed increases as the price decreases.
Here the consumer buys three books and ten records and the marginal utility of third book equals the marginal utility of tenth record.
The consumer will buy the products as long as the price is less than the marginal utility.
So, we can infer that the price of the book is more than the price of record. That is why the consumer buys more of records.
The consumer will equate his income in such a way that the last dollar spent on each good, book and record , is equal
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How many units of consumption
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5 units of good 2
24.34 units of good 2
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24.34 units of good 1
16.67 units of good 1
5 units of good 1
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5 units of good 2
24.34 units of good 2
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