Rules for Maximizing Utility

Read this article to learn more about how to calculate marginal utility per dollar. Make sure to answer the "Try It" questions.

4. Applying the Rule

José's first purchase will be a movie. Why? José's choices are to purchase either a T-shirt or a movie. Table 1 shows that the marginal utility per dollar spent on the first T-shirt is 1.6 compared with 2.5 for the first movie. Because the first movie gives José more marginal utility per dollar than the first T-shirt, and because the movie is within his budget, he will purchase a movie first.

José will continue to purchase the good which gives him the highest marginal utility per dollar until he exhausts the budget. José will keep purchasing movies because they give him a greater "bang for the buck" until the sixth movie is equivalent to a T-shirt purchase. José can afford to purchase that T-shirt. So José will choose to purchase six movies and one T-shirt. That combination, six movies and one T-shirt, is his consumer equilibrium