Asked by Jessica Querol on Apr 27, 2024
Verified
Steven consumes staples and paper clips.He is maximizing his utility in consumption of both goods.The price of staples rises.After the change in price,Steven should consume _____ staples and _____ paper clips.
A) more;fewer
B) more;more
C) fewer;more
D) fewer;fewer
Marginal Utility
The surplus satisfaction or utility experienced by an individual from consuming an extra unit of a particular good or service.
Utility Maximization
The process by which individuals allocate their resources to maximize their satisfaction or utility.
- Understand the relationship between utility maximization and consumption choices when the price of goods changes.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
C
Explanation :
When the price of staples rises, Steven's overall budget constraint tightens, assuming his income and the price of paper clips remain constant. This means he has less purchasing power to allocate between the two goods. In order to maximize his utility, he should decrease his consumption of the now more expensive staple and increase consumption of the relatively cheaper paper clip. Therefore, he should consume fewer staples and more paper clips, as indicated by choice C.
Learning Objectives
- Understand the relationship between utility maximization and consumption choices when the price of goods changes.