Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumption choices
B
Total expenditure
C
Market price
D
Utility maximization
Understanding the Answer
Let's break down why this is correct
Answer
Marginal utility refers to the extra satisfaction a consumer gets from consuming an additional unit of a good or service. Just like marginal utility helps us understand how much enjoyment someone gets from buying more of something, a budget constraint shows the limits of what a consumer can afford to buy. It represents the maximum amount of goods and services a person can purchase based on their income and prices. For example, if someone has $20 and each sandwich costs $5, their budget constraint allows them to buy a maximum of four sandwiches. Therefore, while marginal utility relates to satisfaction from consumption, the budget constraint relates to the limits of purchasing power.
Detailed Explanation
A budget constraint limits how much you can spend. Other options are incorrect because Total expenditure is how much money you spend overall; Market price is what you pay for items.
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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