📚 Learning Guide
Maximizing Utility with Budgets
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If a consumer is maximizing their utility but decides to purchase more of a good despite its marginal utility per dollar being lower than that of another good, what is the likely underlying cause of this decision?

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Choose the Best Answer

A

They may have a personal preference for that good, valuing it more highly than its marginal utility suggests.

B

They misunderstood the budget constraint and think they can afford it.

C

They believe that the prices of goods will change in the future, making current purchases more valuable.

D

They are unaware of the concept of marginal utility altogether.

Understanding the Answer

Let's break down why this is correct

Answer

When a consumer is maximizing their utility, they usually want to get the most satisfaction from their spending. If they decide to buy more of a good even though its marginal utility per dollar is lower than another good, it might be because they have a strong preference for that specific good. For example, if someone loves chocolate cake but realizes that fruit provides more satisfaction per dollar, they might still choose to buy more chocolate cake because it brings them joy. This decision reflects their personal tastes and emotions, which can sometimes outweigh strict calculations of utility. Therefore, the underlying cause could be their desire for enjoyment or comfort from that good, even if it seems less efficient economically.

Detailed Explanation

People often choose things they like more, even if they cost more. Other options are incorrect because Some might think they have more money than they do; Believing prices will change can lead to poor choices now.

Key Concepts

Maximizing Utility
Budget Constraints
Marginal Utility
Topic

Maximizing Utility with Budgets

Difficulty

medium level question

Cognitive Level

understand

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