📚 Learning Guide
Marginal Utility and Budgeting
hard

If two goods provide the same total utility but have different prices, it is always optimal to allocate more of the budget to the cheaper good to maximize overall satisfaction.

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

True

B

False

Understanding the Answer

Let's break down why this is correct

Answer

When we talk about total utility, we mean the overall satisfaction or happiness we get from consuming goods. If two goods give us the same total utility but one is cheaper, it makes sense to buy more of the cheaper good because we can get the same satisfaction for less money. This way, we can save some of our budget or use that saved money to buy even more of the cheaper good or something else we enjoy. For example, if you can get 10 units of satisfaction from a $5 pizza or a $10 burger, choosing the pizza allows you to spend less while getting the same level of happiness. Thus, by allocating more of your budget to the cheaper good, you maximize your overall satisfaction and make your money go further.

Detailed Explanation

It's not always best to buy more of the cheaper good. Other options are incorrect because This answer suggests that price is the only thing that matters.

Key Concepts

Marginal Utility
Budgeting
Resource Allocation
Topic

Marginal Utility and Budgeting

Difficulty

hard level question

Cognitive Level

understand

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