📚 Learning Guide
Utility Maximization After Price Change
medium

When faced with a price increase for oranges, which of the following strategies would a consumer likely consider to maximize their utility? (Select all that apply)

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Choose the Best Answer

A

Increase consumption of apples if their marginal utility per dollar spent is higher than oranges

B

Continue purchasing the same quantity of oranges despite the price increase

C

Substitute some oranges with another fruit that provides higher marginal utility per dollar

D

Decrease overall consumption of both fruits to save money

E

Allocate more budget to oranges because they are perceived as higher quality

Understanding the Answer

Let's break down why this is correct

Answer

When the price of oranges goes up, consumers want to get the most satisfaction or utility from their spending. One way to do this is by looking for substitute fruits, like apples or bananas, which may be cheaper but still tasty and nutritious. Another strategy is to buy fewer oranges but still enjoy them occasionally, allowing them to appreciate the fruit more when they do buy it. Additionally, consumers might decide to buy oranges in bulk if they find a sale, which can lower the cost per fruit and still provide satisfaction. For example, if a consumer usually buys three oranges a week but notices the price has increased, they might switch to buying two oranges and a few apples instead to keep their fruit intake enjoyable and affordable.

Detailed Explanation

None of the strategies listed help a consumer get more satisfaction for their money after the price of oranges goes up. Other options are incorrect because This option suggests switching to apples, but it doesn't help if apples are also expensive; Continuing to buy the same amount of oranges means spending more money without getting more satisfaction.

Key Concepts

Utility Maximization
Price Elasticity of Demand
Consumer Choice Theory
Topic

Utility Maximization After Price Change

Difficulty

medium level question

Cognitive Level

understand

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