📚 Learning Guide
Optimization in Microeconomics
hard

In a scenario where a consumer is trying to maximize their utility given a fixed budget, how can the consumer assess the optimal combination of goods they should purchase? They should compare the marginal benefit of each good to what criterion?

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Choose the Best Answer

A

The total income available

B

The marginal cost of each good

C

The average utility derived from all goods

D

The total expenditure planned

Understanding the Answer

Let's break down why this is correct

Answer

To maximize their utility within a fixed budget, a consumer needs to look at the marginal benefit of each good they want to buy. The marginal benefit is the additional satisfaction or happiness gained from consuming one more unit of a good. The consumer should compare this marginal benefit to the price of the good, which is the cost of buying that extra unit. For example, if a consumer finds that the extra satisfaction from one more slice of pizza is greater than the price of that slice, then it makes sense to buy it. Ultimately, they should keep buying goods until the marginal benefit equals the price, ensuring they get the most satisfaction for their money.

Detailed Explanation

To get the most satisfaction, a consumer should look at how much extra happiness each good gives compared to its cost. Other options are incorrect because Some might think that just knowing how much money you have is enough; People might believe that looking at the average happiness from all items is helpful.

Key Concepts

utility maximization
marginal benefit
budget constraints
Topic

Optimization in Microeconomics

Difficulty

hard level question

Cognitive Level

understand

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