📚 Learning Guide
Utility Maximization After Price Change
hard

How should a consumer adjust their consumption of apples and oranges if the price of oranges rises, given their marginal utilities?

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

Increase orange consumption since they provide higher utility

B

Decrease orange consumption and increase apple consumption

C

Maintain the same consumption level for both fruits

D

Shift all budget to oranges for maximum satisfaction

Understanding the Answer

Let's break down why this is correct

Answer

When the price of oranges rises, a consumer should think about how much satisfaction, or utility, they get from both apples and oranges. If oranges become more expensive, the consumer might find that they get less value from buying them compared to apples. To maximize their overall satisfaction, they should buy fewer oranges and increase their consumption of apples, which are now relatively cheaper. For example, if a consumer used to buy 5 oranges and 3 apples but finds that oranges now cost too much, they might decide to buy only 3 oranges and 5 apples instead, balancing their budget while still enjoying their fruit. This adjustment helps the consumer make the most of their money while still enjoying the fruits they like.

Detailed Explanation

When the price of oranges goes up, they become less affordable. Other options are incorrect because This choice suggests buying more oranges, but higher prices mean less value for money; Keeping the same amount of both fruits ignores the price change.

Key Concepts

Utility Maximization
Marginal Utility
Consumer Behavior
Topic

Utility Maximization After Price Change

Difficulty

hard level question

Cognitive Level

understand

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