Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers should allocate their budget in a way that equalizes the marginal utility per dollar spent across all goods.
B
Consumers should spend their entire budget on the good with the highest total utility.
C
Consumers should prioritize purchasing goods that have the lowest price.
D
Consumers should only purchase goods that provide them with positive utility.
Understanding the Answer
Let's break down why this is correct
Answer
The utility-maximizing rule in consumer choice theory helps people decide how to spend their money to feel the happiest or most satisfied. It suggests that consumers should buy goods and services until the last dollar spent on each item gives them the same level of satisfaction or utility. For example, if you have a budget of $10 and you can choose between two snacks, chips and cookies, you should keep buying them until the extra satisfaction from spending your last dollar on chips is equal to the satisfaction from spending it on cookies. This way, you are getting the most happiness out of your budget. In simple terms, it’s about balancing what you buy so that each dollar gives you the same joy, maximizing your overall satisfaction.
Detailed Explanation
This rule says to spend your money where you get the most satisfaction for each dollar. Other options are incorrect because This idea suggests buying only the item that seems best overall; This option focuses only on price.
Key Concepts
utility-maximizing rule
Topic
Maximizing Utility with Budgets
Difficulty
easy level question
Cognitive Level
understand
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