Suppose you consume three pounds of beef and five pounds of pork per month. The price of beef is $ 1.50 per pound, and pork is $ 2.00 per pound. Assuming you have studied economics and achieved consumer equilibrium, what is the ratio of the marginal utility of beef to the marginal utility of pork?
Answers:
Both are substitude goods. But still if you want ratio, its 1.5/2
To determine the ratio of the marginal utility of beef to the marginal utility of pork, we need to have information about the marginal utility of each item.
Marginal utility refers to the additional utility or satisfaction gained from consuming one additional unit of a good. Unfortunately, the problem statement does not provide us with any data on the marginal utility. So, we cannot directly calculate the ratio.
However, we can make an assumption that the marginal utility of each item decreases as more of it is consumed. This is known as the law of diminishing marginal utility. In other words, as you consume more and more of a good, the additional satisfaction you get from consuming one more unit gradually decreases.
With this assumption, we can conclude that the marginal utility of beef and pork will both decrease as you consume more.
Given this assumption, the ratio of the marginal utility of beef to the marginal utility of pork will generally be less than or equal to the ratio of their prices, as consumers tend to allocate their spending in a way that maximizes their total utility.
In this case, the price ratio of beef to pork is $1.50/$2.00 = 0.75.
While we don't have exact data on the marginal utility, based on the assumption of diminishing marginal utility, we can expect the ratio of the marginal utility of beef to the marginal utility of pork to be less than or equal to 0.75.