📚 Learning Guide
Utility Maximization After Price Change
hard

Maria is evaluating her fruit purchases after the price of oranges has increased. Previously, she consumed 6 apples and 4 oranges, but now she can only afford 5 apples and 3 oranges within her budget. If the marginal utility of the 5th apple is 7 units and the marginal utility of the 3rd orange is 15 units, which choice reflects the best utility-maximizing decision based on her new consumption situation?

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Choose the Best Answer

A

She should buy more oranges because they provide higher total utility.

B

She should buy more apples since they are cheaper than oranges.

C

She should adjust her consumption to 5 apples and 3 oranges because it maximizes her utility per dollar spent.

D

She should buy 4 apples and 4 oranges since that was her previous consumption ratio.

Understanding the Answer

Let's break down why this is correct

Answer

To determine the best utility-maximizing decision for Maria after the price change, we need to look at the marginal utility per dollar spent on each fruit. The marginal utility of the 5th apple is 7 units, and the marginal utility of the 3rd orange is 15 units. If we assume both fruits cost the same, Maria gets more utility from the orange because its marginal utility is higher. Therefore, even though she can afford fewer fruits now, she should prioritize buying oranges over apples to maximize her satisfaction given her budget constraints. In this way, Maria can make the most of her limited resources by choosing the fruit that provides her with the greatest benefit.

Detailed Explanation

Maria should stick to 5 apples and 3 oranges. Other options are incorrect because This choice assumes oranges give more total satisfaction; This option suggests buying more apples just because they cost less.

Key Concepts

Utility Maximization
Marginal Utility
Budget Constraint
Topic

Utility Maximization After Price Change

Difficulty

hard level question

Cognitive Level

understand

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