📚 Learning Guide
Consumer Utility Maximization
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A consumer is deciding between purchasing a smartwatch for $300 that provides 30 units of utility and a pair of headphones for $150 that provides 15 units of utility. Which category does this scenario best illustrate in terms of consumer utility maximization?

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Choose the Best Answer

A

Maximizing utility by choosing the good with the highest marginal utility per dollar spent

B

Choosing the less expensive good regardless of utility

C

Ignoring opportunity costs in the decision-making process

D

Allocating resources based solely on total utility rather than marginal utility

Understanding the Answer

Let's break down why this is correct

Answer

This scenario illustrates the concept of consumer utility maximization, which is about getting the most satisfaction or "utility" from spending money. When comparing the smartwatch and the headphones, we look at how much utility each item provides relative to its cost. The smartwatch costs $300 and offers 30 units of utility, giving a utility per dollar of 0. 1, while the headphones cost $150 and provide 15 units of utility, resulting in a utility per dollar of 0. 1 as well.

Detailed Explanation

The consumer is looking for the best value. Other options are incorrect because Some might think that cheaper items are always better; Ignoring opportunity costs means not thinking about what you give up.

Key Concepts

Consumer Utility Maximization
Marginal Utility
Opportunity Cost
Topic

Consumer Utility Maximization

Difficulty

medium level question

Cognitive Level

understand

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