📚 Learning Guide
Marginal Utility and Consumer Choice
easy

If a consumer is maximizing utility, how should they allocate their budget between apples and oranges?

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Choose the Best Answer

A

Spend equal amounts on both apples and oranges.

B

Allocate more budget to the good with higher marginal utility per dollar.

C

Buy only the good that is cheaper.

D

Continuously buy the good that has a lower price until the budget is exhausted.

Understanding the Answer

Let's break down why this is correct

Answer

When a consumer is maximizing utility, they need to think about how much happiness or satisfaction they get from each fruit, which is called marginal utility. The consumer should compare the marginal utility of apples to that of oranges in relation to their prices. For example, if one apple gives you 10 units of happiness and costs $1, while one orange gives you 5 units of happiness and also costs $1, you get more satisfaction per dollar from apples. To maximize utility, the consumer should spend more of their budget on apples until the point where the extra happiness from the last apple equals the happiness from the last orange. This way, they make sure they are getting the most enjoyment from their money spent on fruit.

Detailed Explanation

To get the most satisfaction, spend more on the fruit that gives you the most value for your money. Other options are incorrect because Spending the same amount on both fruits ignores which one makes you happier; Choosing only the cheaper fruit might not give you the most satisfaction.

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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