|Posted on April 18, 2014 at 10:10 AM|
When a buyer purchases two types of goods, we can determine the utility-maximizing quantities of each good using the following equation:
Marginal Utility of X / Price of X = Marginal Utility of Y / Price of Y
The ratios must equal one another. If you need the MU / P to decrease, then buy more units of that good. This is because of the law of diminishing marginal utility (as you buy additional units, marginal utility decreases).
If you need the MU / P to increase, then buy less of the good.
AP Microeconomics Unit 1 Basic Economic Concepts