📚 Learning Guide
Marginal Utility and Budgeting
easy

When determining the optimal consumption of goods within a budget, it is essential to compare the marginal utility per dollar spent on each good to maximize __________.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Total Utility

B

Average Cost

C

Fixed Expenses

D

Marginal Cost

Understanding the Answer

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Answer

When deciding how to spend your money on different goods, it’s important to look at the marginal utility per dollar for each item. Marginal utility is the extra satisfaction you get from consuming one more unit of a good. For example, if buying an extra slice of pizza gives you 10 units of satisfaction and costs $2, the marginal utility per dollar is 5 (10 divided by 2). If a drink gives you 6 units of satisfaction for $1, its marginal utility per dollar is 6. To maximize your overall happiness within your budget, you should spend your money on the goods that give you the highest marginal utility per dollar until your budget runs out.

Detailed Explanation

Total utility is the overall satisfaction you get from all the goods you buy. Other options are incorrect because Some might think average cost is important, but it focuses on the total cost divided by quantity; Fixed expenses are costs that don't change, like rent.

Key Concepts

Marginal Utility
Budgeting
Consumption Choices
Topic

Marginal Utility and Budgeting

Difficulty

easy level question

Cognitive Level

understand

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