Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They will purchase more of the good whose price has decreased and less of substitute goods.
B
They will only purchase the good whose price has decreased.
C
They will not change their consumption habits regardless of the price change.
D
They will purchase less of the good whose price has decreased and more of complement goods.
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a good decreases, a consumer can buy more of that good without spending more money. This means they can adjust their consumption bundle by purchasing more of the cheaper good while possibly buying less of other goods. By doing this, they can maximize their satisfaction, or utility, because they are getting more of what they enjoy for less money. For example, if the price of apples drops, a consumer might decide to buy more apples and reduce the amount of oranges they buy. This change helps them get the most happiness from their budget.
Detailed Explanation
When a good's price goes down, it becomes cheaper. Other options are incorrect because This answer suggests that consumers will only buy the cheaper good; This option implies that price changes don't matter to consumers.
Key Concepts
consumer behavior
optimal consumption bundle
Topic
Utility Maximization After Price Change
Difficulty
medium level question
Cognitive Level
understand
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