Savita consumes 2 goods X and Y. If marginal utility of X is 30 utils…

Savita consumes 2 goods X and Y. If marginal utility of X is 30 utils and that of Y is 45 utils. Prices of both goods X and Y are ₹3 and ₹5 respectively. Savita will consume __________.

Answer & explanation

Correct answer: option 1

To determine the optimal consumption of goods X and Y, we can use the concept of the marginal utility per rupee spent. The marginal utility per rupee spent is calculated by dividing the marginal utility of a good by its price.

$Marginal Utility per Rupee = Price Marginal Utility$

For good X: $Marginal Utility per Rupee for X = 3 30 = 10$

For good Y: $Marginal Utility per Rupee for Y = 5 45 = 9$

Savita will allocate her budget in such a way that the marginal utility per rupee is the same for both goods. Since the marginal utility per rupee for good X is higher (10 > 9), Savita will allocate more of her budget to good X.

Therefore, the correct option is: More of good X