Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Consumer behaviour

Question:

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 __________.

Options:

More of good X

More of good Y

More of both good X and good Y

More of either good X or good Y

Correct Answer:

More of good X

Explanation:

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=Marginal UtilityPriceMarginal Utility per Rupee=PriceMarginal Utility

For good X: Marginal Utility per Rupee for X=303=10Marginal Utility per Rupee for X=330=10

For good Y: Marginal Utility per Rupee for Y=455=9Marginal Utility per Rupee for Y=545=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