Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose 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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