If a consumer has a budget of $50 and prefers to buy two goods, A and B, how can they maximize their satisfaction given that good A costs $10 and good B costs $5?

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Seekh · Accepted Answer

With a $50 budget, the consumer can buy at most five units of good A (5 × $10) or ten units of good B (10 × $5). To maximize satisfaction, the consumer should compare the utility each good provides per dollar; if the utility per dollar is the same for both goods, buying the cheaper good B gives twice as many units, so the consumer gets more goods for the same money. If the consumer values each unit of A more than a unit of B, they should buy as many A’s as possible until the budget is exhausted. For example, buying 3 A ($30) and 4 B ($20) uses the full $50 and yields 7 goods, which may be the best mix if A is slightly more valuable per unit.

If a consumer has a budget of $50 and prefers to buy two goods, A and B, how can they maximize their satisfaction given that good A costs $10 and good B costs $5?

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