Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To maximize the utility of consumers given their income
B
To limit the choices available to consumers
C
To increase the prices of goods
D
To calculate the total utility of all goods
Understanding the Answer
Let's break down why this is correct
Answer
The main purpose of a budget constraint in consumer choice theory is to show the limits of what a consumer can afford when making choices about spending their money. It outlines the different combinations of goods and services that a person can buy with their available income. For example, if someone has a budget of $10, they might choose between buying two sandwiches for $10 or five bags of chips for $10. The budget constraint helps consumers understand that they must make choices based on their preferences and the prices of items, as they cannot buy everything they want. Ultimately, it guides them to maximize their satisfaction, or utility, by selecting the combination of goods that gives them the most enjoyment within their budget.
Detailed Explanation
A budget constraint helps consumers decide how to spend their money wisely. Other options are incorrect because Some might think a budget constraint just limits choices; It's a common mistake to think a budget constraint raises prices.
Key Concepts
budget constraint
Topic
Maximizing Utility with Budgets
Difficulty
easy level question
Cognitive Level
understand
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