📚 Learning Guide
Utility Maximization After Price Change
easy

A consumer is deciding how to allocate their budget between apples and oranges after the price of oranges increases. If the marginal utility of the fourth apple is 5 and the marginal utility of the fourth orange is 10, which of the following classification best describes the consumer's optimal consumption choice?

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Choose the Best Answer

A

The consumer should buy more oranges because they provide higher utility per dollar.

B

The consumer should buy more apples because they are cheaper.

C

The consumer should maintain their current consumption of both fruits.

D

The consumer should buy more oranges because their marginal utility is higher.

Understanding the Answer

Let's break down why this is correct

Answer

When a consumer decides how to spend their money on apples and oranges, they want to get the most satisfaction, or utility, from their purchases. The marginal utility is the extra satisfaction gained from consuming one more unit of a product. In this case, the consumer gets a utility of 5 from the fourth apple and 10 from the fourth orange. Since the marginal utility of the orange is higher, the consumer should buy more oranges to maximize their satisfaction. Therefore, the optimal consumption choice in this situation is to allocate more of their budget toward oranges rather than apples.

Detailed Explanation

The consumer gets more satisfaction from oranges. Other options are incorrect because Just being cheaper doesn't mean apples are better; Sticking to the same amount might waste money.

Key Concepts

Utility Maximization
Marginal Utility
Budget Allocation
Topic

Utility Maximization After Price Change

Difficulty

easy level question

Cognitive Level

understand

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