Assume that good $A$ and good $B$ are substitutes for each other. Andrea is currently consuming the utility-maximizing combination of these two goods.

How will the $M U_{A}$ and $M U_{B}$ change if Andrea alters her consumption as a result of an increase in the price of good $B$ ?

Choose 1 answer:
(A) $M U_{B}$ will increase and $M U_{A}$ will decrease as the consumer reallocates consumption.
(B) $M U_{A}$ will increase and $M U_{B}$ will decrease as the consumer reallocates consumption.
(c) $M U_{A}$ and $M U_{B}$ will both definitely increase.
(D) $M U_{A}$ and $M U_{B}$ will both definitely decrease.
(E) $M U$ will both increase, but the $M U_{A}$ will increase by more than the increase in $M U_{B}$.

Question

Assume that good $A$ and good $B$ are substitutes for each other. Andrea is currently consuming the utility-maximizing combination of these two goods.

How will the $M U_{A}$ and $M U_{B}$ change if Andrea alters her consumption as a result of an increase in the price of good $B$ ?

Choose 1 answer:
(A) $M U_{B}$ will increase and $M U_{A}$ will decrease as the consumer reallocates consumption.
(B) $M U_{A}$ will increase and $M U_{B}$ will decrease as the consumer reallocates consumption.
(c) $M U_{A}$ and $M U_{B}$ will both definitely increase.
(D) $M U_{A}$ and $M U_{B}$ will both definitely decrease.
(E) $M U$ will both increase, but the $M U_{A}$ will increase by more than the increase in $M U_{B}$.

Accepted Answer

∻Solution∻ ‖ a ⋮ Substitutes and Marginal Utility: When two goods are substitutes, an increase in the price of one good (good B) will lead to an increase in the consumption of the other good (good A). This is because consumers will switch to the relatively cheaper substitute. ‖ ‖ b ⋮ Marginal Utility of Good A: As Andrea increases her consumption of good A, the marginal utility of good A ($MU_A$) will increase because she is consuming more of it. ‖ ‖ c ⋮ Marginal Utility of Good B: Conversely, as Andrea decreases her consumption of good B due to its higher price, the marginal utility of good B ($MU_B$) will decrease because she is consuming less of it. ‖ ∻Answer∻ ⚹ (B) $MU_A$ will increase and $MU_B$ will decrease as the consumer reallocates consumption. ⚹ ∻Key Concept∻ ⚹ Substitutes and Marginal Utility ⚹ ∻Explanation∻ ⚹ When the price of a substitute good increases, consumers will shift their consumption to the other good, increasing its marginal utility while decreasing the marginal utility of the more expensive good. ⚹◊How does an increase in the price of good $B$ affect the marginal utility of good $A$ and good $B$ when they are substitutes?⍭ Generate me a similar question◊

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