Asked by jailene lobaton on Jul 24, 2024
Verified
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $3 and $4, respectively. The marginal utility of the last units of A and B are 15 and 24, respectively. These data suggest that Ms. Thomson
A) has preferences that are at odds with the principle of diminishing marginal utility.
B) considers A and B to be complementary goods.
C) should buy more A and less B.
D) should buy more B and less A.
Marginal Utility
The extra pleasure or benefit obtained from the consumption of an additional unit of a product or service.
Money Income
refers to the total income received by an individual or household in monetary form, including wages, salaries, benefits, and investment income.
- Assess utility schedules to pinpoint the superior consumption mix for a consumer.
- Evaluate the impact of changes in the budget constraint on consumer preferences and connect this to the economic principles concerning normal and inferior goods.
Verified Answer
JS
Japleen SohalJul 26, 2024
Final Answer :
D
Explanation :
To maximize utility, the consumer should allocate spending so that the marginal utility per dollar spent is equal across all goods. Here, the marginal utility per dollar for A is 15/3 = 5, and for B is 24/4 = 6. Since the marginal utility per dollar is higher for B, Ms. Thomson should buy more B and less A to reach an optimal allocation of her income.
Learning Objectives
- Assess utility schedules to pinpoint the superior consumption mix for a consumer.
- Evaluate the impact of changes in the budget constraint on consumer preferences and connect this to the economic principles concerning normal and inferior goods.