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HomeHomework HelpeconomicsMarginal Utility Per Dollar

Marginal Utility Per Dollar

Marginal Utility Per Dollar is a concept in Economics that helps consumers maximize utility by considering the additional satisfaction gained from spending one more dollar on each good. In this scenario, the consumer chooses the combination of apples and oranges that provides the highest marginal utility per dollar spent within the budget constraint of $7, demonstrating rational consumer decision-making.

intermediate
2 hours
Economics
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Overview

Marginal utility per dollar is a crucial concept in economics that helps consumers make informed decisions about their spending. By understanding how much additional satisfaction they gain from each dollar spent, individuals can allocate their budgets more effectively. This concept is rooted in the ...

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Key Terms

Utility
A measure of satisfaction or pleasure derived from consuming a good or service.

Example: Eating a delicious meal provides utility.

Marginal Utility
The additional satisfaction gained from consuming one more unit of a good or service.

Example: The satisfaction from eating one more slice of pizza.

Diminishing Marginal Utility
The principle that as a person consumes more units of a good, the additional satisfaction decreases.

Example: The first slice of cake is more satisfying than the fifth.

Consumer Choice
The decision-making process of consumers regarding the purchase of goods and services.

Example: Choosing between buying a new phone or saving money.

Budget Constraint
The limit on the consumption choices of an individual based on their income and prices.

Example: A student with a $50 budget for groceries.

Opportunity Cost
The value of the next best alternative that is forgone when making a choice.

Example: Choosing to buy a book instead of a movie ticket.

Related Topics

Consumer Behavior
Study of how individuals make decisions to spend their resources.
intermediate
Budgeting Techniques
Methods for managing personal finances and expenditures.
intermediate
Price Elasticity of Demand
How the quantity demanded of a good responds to price changes.
advanced

Key Concepts

UtilityMarginal UtilityConsumer ChoiceBudget Constraint