Suppose that there are two goods, X and Y, facing a consumer. The prices are Px = Rs. 4 and Py = Rs. 5. He has Rs. 110 to spend on these goods. Suppose, he is currently buying 15 units of good X (with marginal utility equal to 40) and 10 units of good Y (with marginal utility equal to 45). In the above context, which one of the following statements is correct?

The correct answer is: A. His total utility will increase if he reallocates his spending towards more of good X and less of good Y.

The consumer’s marginal utility of good X is 40, while his marginal utility of good Y is 45. This means that he is getting more satisfaction from consuming good Y than from consuming good X. In order to maximize his total utility, he should reallocate his spending towards more of good X and less of good Y. This will allow him to consume more units of the good that gives him the most satisfaction, and less units of the good that gives him less satisfaction.

Here is a more detailed explanation of each option:

• Option A: His total utility will increase if he reallocates his spending towards more of good X and less of good Y. This is the correct answer, as explained above.
• Option B: His total utility will increase if he spends more on good Y and less on good X. This is incorrect, as the consumer is already getting more satisfaction from good Y than from good X. If he spends more on good Y, his total utility will decrease.
• Option C: His total utility will increase if he spends less on both the goods. This is incorrect, as the consumer is already getting more satisfaction from good Y than from good X. If he spends less on both goods, his total utility will decrease.
• Option D: His total utility is being maximized subject to the budget constraint he is facing. This is incorrect, as the consumer is not getting the most satisfaction from his spending. He can increase his total utility by reallocating his spending towards more of good X and less of good Y.