Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Spend equally on both goods regardless of price.
B
Allocate spending based on the ratio of marginal utility per dollar spent for each good.
C
Focus all spending on the good with the highest total utility.
D
Purchase only the good with the highest price to ensure maximum satisfaction.
Understanding the Answer
Let's break down why this is correct
Answer
To maximize utility with a fixed budget, a consumer should think about how much satisfaction they get from each good they want to buy. Utility means the happiness or satisfaction from consuming something. The key idea is to compare the price of each good with the satisfaction it provides. For example, if a consumer has $10 to spend on apples and bananas, they should look at how many apples and bananas they can buy for that money and how much happiness each fruit brings them. By balancing their spending on both goods in a way that gives them the most satisfaction without going over budget, they can make the best use of their money.
Detailed Explanation
To get the most satisfaction, spend based on how much happiness each dollar brings. Other options are incorrect because Spending the same on both goods ignores their prices; Focusing only on the good with the highest total happiness can waste money.
Key Concepts
Maximizing Utility
Budget Constraints
Marginal Utility
Topic
Maximizing Utility with Budgets
Difficulty
hard level question
Cognitive Level
understand
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