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Marginal Utility and Consumer Choice
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Which of the following statements accurately describe the relationship between marginal utility and consumer choice? Select all that apply.

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Choose the Best Answer

A

Consumers will continue to purchase additional units of a good as long as the marginal utility exceeds the price paid for that good.

B

The law of diminishing marginal utility implies that each additional unit consumed will provide the same amount of satisfaction as the previous one.

C

To maximize total utility, consumers should allocate their budget in a way that equalizes the marginal utility per dollar spent across all goods.

D

If the marginal utility of apples is higher than that of oranges, consumers should only buy apples to maximize satisfaction.

E

Consumers disregard the marginal utility of goods when making purchasing decisions.

Understanding the Answer

Let's break down why this is correct

Answer

Marginal utility refers to the additional satisfaction a consumer gets from consuming one more unit of a good or service. When making choices, consumers aim to maximize their total satisfaction, which means they will continue to buy more of a product as long as the marginal utility of that product is greater than its price. For example, if a person enjoys pizza and finds that the first slice gives them a lot of satisfaction, they might buy a second slice if it still provides good value compared to its cost. However, if they reach a point where the next slice does not add enough satisfaction to justify the price, they will stop buying more. Therefore, the relationship between marginal utility and consumer choice is crucial because it guides consumers in deciding how much of a product to purchase based on the satisfaction they expect to receive.

Detailed Explanation

All the statements misunderstand how marginal utility affects choices. Other options are incorrect because This suggests people will keep buying if satisfaction is higher than price; This implies each item gives the same joy.

Key Concepts

Marginal Utility
Consumer Choice
Budget Constraint
Topic

Marginal Utility and Consumer Choice

Difficulty

medium level question

Cognitive Level

understand

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