Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal utility increases as more units of a good are consumed.
B
Consumers should allocate their budget to equalize the marginal utility per dollar across different goods.
C
A higher price for a good always indicates a higher marginal utility.
D
Optimal consumption occurs when the marginal utility of the last dollar spent is the same for all goods.
E
Marginal utility is irrelevant when making purchasing decisions if the total utility is maximized.
Understanding the Answer
Let's break down why this is correct
Answer
Marginal utility refers to the additional satisfaction or benefit you get from consuming one more unit of a good or service. When budgeting, people aim to maximize their happiness or satisfaction within their limited resources. This means they will allocate their money to different items in a way that the last dollar spent on each item provides the highest marginal utility. For example, if you have $10 to spend and you find that the last slice of pizza gives you more satisfaction than a candy bar, you might choose to spend your money on pizza instead of candy. Understanding the relationship between marginal utility and budgeting helps you make smarter choices that lead to greater overall happiness with your purchases.
Detailed Explanation
All the statements misunderstand how marginal utility works with budgeting. Other options are incorrect because Many think that more of a good always makes it better; Some believe you should spend equally on all goods.
Key Concepts
Marginal Utility
Budgeting
Consumer Choice Theory
Topic
Marginal Utility and Budgeting
Difficulty
medium level question
Cognitive Level
understand
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