Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers will always buy the cheapest product available.
B
Consumers will allocate their budget in a way that the last unit of money spent on each good provides the same level of additional satisfaction.
C
Consumers will purchase more of a good regardless of its price.
D
Consumers will only buy goods until their total income is exhausted.
Understanding the Answer
Let's break down why this is correct
Answer
Utility maximization means that a consumer aims to get the most satisfaction or "utility" from their spending. When making purchasing decisions, a consumer compares the additional satisfaction gained from buying one more unit of a good to its cost. If the extra satisfaction, or marginal utility, is greater than the price of the good, the consumer will likely buy it. For example, if buying a slice of pizza gives you more happiness than the money you spend on it, you will choose to buy that pizza. This process helps consumers decide how to allocate their limited resources to maximize their overall happiness.
Detailed Explanation
This means that consumers will spend their money so that each item they buy gives them the same extra happiness. Other options are incorrect because Some might think that buying the cheapest item is always best; It's a common mistake to think that people will buy more of something no matter the price.
Key Concepts
utility maximization
Topic
Marginal Analysis
Difficulty
easy level question
Cognitive Level
understand
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