📚 Learning Guide
Marginal Utility and Budgeting
medium

Arrange the following steps in the correct order for maximizing utility within a budget constraint: A) Calculate the marginal utility per dollar for each good; B) Compare the marginal utility per dollar across goods; C) Allocate budget to goods based on the highest marginal utility per dollar; D) Assess total utility gained from the chosen consumption bundle.

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

A → B → C → D

B

B → A → C → D

C

C → D → A → B

D

D → C → B → A

Understanding the Answer

Let's break down why this is correct

Answer

To maximize utility within a budget constraint, you start by calculating the marginal utility per dollar for each good. This means you look at how much extra satisfaction you get from spending one more dollar on each item. Next, you compare these values across all the goods to see which ones give you the most satisfaction for your money. After that, you allocate your budget to the goods that have the highest marginal utility per dollar, ensuring you get the most enjoyment from your spending. Finally, you assess the total utility gained from the chosen consumption bundle to see if you are satisfied with your choices.

Detailed Explanation

First, you calculate how much satisfaction each good gives you for each dollar spent. Other options are incorrect because This option suggests comparing before calculating; This option skips the important step of comparing values.

Key Concepts

Marginal Utility
Budgeting
Resource Allocation
Topic

Marginal Utility and Budgeting

Difficulty

medium level question

Cognitive Level

understand

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