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JAMB Economics 1999 Question 13

Question 13

Theory of Consumer Behaviour

A utility maximizing household will allocate its expenditure so that

  1. A.more naira is spent on commodities with the highest utility
  2. B.less naira is spent on commodities with the lowest utility
  3. C.the utility of the last naira spent on each commodity is equal
  4. D.the amount spent on each commodity is equal.
Show the answer and explanation

Answer: C (the utility of the last naira spent on each commodity is equal)

Explanation

Satisfaction is greatest when the marginal utility of the last naira spent is the same for every good (equi-marginal principle).