Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increase consumption of the good with lower marginal utility per dollar spent.
B
Decrease consumption of the good with higher marginal utility per dollar spent.
C
Increase consumption of the good with higher marginal utility per dollar spent.
D
Maintain the same consumption level of both goods.
Understanding the Answer
Let's break down why this is correct
Answer
When a consumer is deciding how to spend their money on two goods, they want to get the most satisfaction or utility from their purchases. Marginal utility refers to the extra satisfaction gained from consuming one more unit of a good. If the marginal utility per dollar spent on one good is higher than that of another, the consumer should buy more of the first good and less of the second. This adjustment will help them maximize their overall satisfaction because they are getting more value for each dollar spent. For example, if buying an extra slice of pizza gives more satisfaction per dollar than a candy bar, the consumer should choose to buy more pizza until the satisfaction from both goods is equal per dollar spent.
Detailed Explanation
When one good gives you more satisfaction per dollar, you should buy more of it. Other options are incorrect because This choice suggests you should buy less of the better option; This option says to reduce the good that gives you more satisfaction.
Key Concepts
Utility maximization
Topic
Marginal Utility and Budgeting
Difficulty
easy level question
Cognitive Level
understand
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