📚 Learning Guide
Marginal Utility and Consumer Choice
easy

A consumer has a budget of $10 to spend on apples and oranges. If the marginal utility of the last apple consumed is 20 utils and the price of an apple is $2, while the marginal utility of the last orange consumed is 15 utils and the price of an orange is $1, which of the following statements correctly classifies the consumer's spending behavior?

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Choose the Best Answer

A

The consumer is maximizing total utility because the marginal utility per dollar spent is higher for apples.

B

The consumer should buy more oranges because they provide more total utility.

C

The consumer should stop buying apples to increase total utility since oranges are cheaper.

D

The consumer is maximizing total utility because the marginal utility per dollar spent is equal for both fruits.

Understanding the Answer

Let's break down why this is correct

Answer

To understand the consumer's spending behavior, we need to look at the marginal utility per dollar spent on each fruit. For apples, the marginal utility is 20 utils, and since they cost $2, the marginal utility per dollar is 10 utils ($20/2). For oranges, with a marginal utility of 15 utils and a price of $1, the marginal utility per dollar is 15 utils ($15/1). Since the consumer gets more utility per dollar from oranges than from apples, it makes sense for them to buy more oranges to maximize their total satisfaction within their $10 budget. Therefore, the consumer is not spending in the most efficient way, as they should focus on buying more oranges rather than apples.

Detailed Explanation

The consumer gets more satisfaction per dollar from apples. Other options are incorrect because This suggests that oranges are better overall; This implies that price alone matters.

Key Concepts

Marginal Utility
Consumer Choice
Budget Constraint
Topic

Marginal Utility and Consumer Choice

Difficulty

easy level question

Cognitive Level

understand

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