The equimarginal rule __________.
equates the marginal utility per dollar spent on each good purchased
states that in order to maximize utility the consumer should buy more of those goods with a high marginal utility
states that in order to maximize utility the consumer should buy more of those goods that cost less
none of the above
A
The correct answer is "equates the marginal utility per dollar spent on each good purchased."
To understand why, let's break down the equimarginal rule. The rule suggests that in order to maximize utility (satisfaction or happiness derived from consuming goods and services), a consumer should allocate their budget in a way that the marginal utility per dollar spent is the same for all goods.
Marginal utility refers to the additional satisfaction or benefit gained from consuming one more unit of a good. It starts to decrease as more units are consumed because additional units of a good tend to have less impact on overall satisfaction.
On the other hand, the marginal utility per dollar spent measures the additional satisfaction gained for each dollar spent on a good. It indicates how efficiently the consumer is allocating their money to maximize their overall happiness.
According to the equimarginal rule, the consumer should distribute their budget in such a way that the marginal utility per dollar spent is equal for all goods. In other words, the consumer should keep buying more of a good as long as the additional satisfaction gained from it is greater than or equal to the additional satisfaction gained from other goods per dollar spent.
So, the equimarginal rule suggests that the consumer should equate the marginal utility per dollar spent on each good purchased. This ensures an efficient allocation of resources and maximizes utility.