📚 Learning Guide
Marginal Analysis
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In a scenario where a consumer is deciding how much of a good to purchase, what does it indicate if the marginal benefit is greater than the marginal cost?

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Learning Path

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Choose the Best Answer

A

The consumer should increase their consumption of the good.

B

The consumer has reached their optimal consumption level.

C

The consumer is spending too much on the good.

D

The consumer should decrease their consumption of the good.

Understanding the Answer

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Answer

When a consumer is deciding how much of a good to buy, marginal benefit refers to the additional satisfaction or value they get from consuming one more unit of that good. If the marginal benefit is greater than the marginal cost, it means that the consumer feels they are getting more value from the good than what they have to pay for it. This situation suggests that it would be a good idea for the consumer to purchase more of that good because they are gaining more benefit than what they spend. For example, if a person is considering buying a slice of pizza and the pleasure they expect from eating it (marginal benefit) is higher than the price of the slice (marginal cost), they should go ahead and buy it. In this way, consumers can make choices that maximize their happiness and satisfaction.

Detailed Explanation

When the extra benefit from buying one more unit is higher than what it costs, it makes sense to buy more. Other options are incorrect because Some might think this means the consumer has bought the right amount; This option suggests the consumer is wasting money.

Key Concepts

Marginal Analysis
Marginal Benefit and Cost
Consumer Surplus
Topic

Marginal Analysis

Difficulty

medium level question

Cognitive Level

understand

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