If a consumer has a budget of $40 to spend on goods C and D, where good C is priced at $8 and good D at $4, which combination of goods would best optimize their utility?

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Seekh · Accepted Answer

With a $40 budget, you can spend it entirely on one type of good or mix them, but the goal is to get the most utility. If we assume each unit of C or D gives the same satisfaction, you want the greatest number of units, so you choose the cheaper good. Good D costs $4, so you can buy 10 units for $40, while good C costs $8, giving only 5 units. Because 10 units of D give twice as many items as 5 units of C, you get more overall utility. Thus, buying 10 units of good D maximizes utility under this budget.

If a consumer has a budget of $40 to spend on goods C and D, where good C is priced at $8 and good D at $4, which combination of goods would best optimize their utility?

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Deep Dive: Optimal Purchase Combinations

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