Asked by Ananaya Sharma on May 12, 2024
Verified
A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the
A) total utility is the same for each good.
B) marginal utility of each good is maximized.
C) marginal utility per dollar spent is the same for all goods.
D) marginal utility per dollar spent is maximized for each good.
Marginal Utility Per Dollar
The additional satisfaction or benefit gained from consuming an additional unit of a good or service, relative to the cost in dollars.
Fixed Income
Refers to investment types that provide regular, predetermined returns, such as bonds or fixed deposits.
Utility Maximization
The principle that individuals or firms aim to achieve the highest satisfaction or benefit from their resources and choices under given constraints.
- Utilize the notion of the ratio of marginal utility to price for utility maximization.
- Comprehend the impact of budget limitations on the decisions of consumers.
Verified Answer
CF
Catherine FarleyMay 17, 2024
Final Answer :
C
Explanation :
The consumer maximizes utility when the marginal utility per dollar spent is the same for all goods, ensuring that the last dollar spent on each good provides the same amount of additional satisfaction, leading to an optimal allocation of their budget.
Learning Objectives
- Utilize the notion of the ratio of marginal utility to price for utility maximization.
- Comprehend the impact of budget limitations on the decisions of consumers.