Asked by Bryce Bloomquist on Jun 03, 2024
Verified
Isobel consumes positive quantities of both jam and juice.The price of jam is 5 cents per unit and the price of juice is 10 cents per unit.Her marginal utility of jam is 10 and her marginal utility of juice is 5.
A) Without changing her total expenditures, she could increase her utility by consuming more jam and less juice.
B) Without changing her total expenditures, she could increase her utility by consuming more juice and less jam.
C) Without changing her total expenditures on jam and juice, she could not increase her utility.
D) She should spend more money on both jam and juice.
E) We can't tell whether any of the other statements are true or false without knowing the quantities she consumes.
Marginal Utility
The extra satisfaction or utility that an individual gains from consuming an additional unit of a good or service.
Price of Jam
The current market cost at which jam is sold, varying based on factors like quality, brand, and ingredients.
Price of Juice
The price of juice refers to the amount of money required to purchase a specific volume of juice, influenced by factors like production costs, brand, and market demand.
- Understand the connection between the marginal rate of substitution (MRS) and the price ratio of goods.
Verified Answer
AM
Axowell musicJun 08, 2024
Final Answer :
A
Explanation :
Isobel's marginal utility per unit of jam is higher than her marginal utility per unit of juice, indicating that she values jam more than juice. Therefore, to maximize her utility without increasing her total expenditure, she should consume more of the cheaper good (jam) and less of the more expensive good (juice). This would increase her total utility by shifting towards the good that gives her higher marginal utility per unit.
Learning Objectives
- Understand the connection between the marginal rate of substitution (MRS) and the price ratio of goods.