Author Question: To maximize utility, why does a consumer consume the combination of goods that equates marginal ... (Read 86 times)

kellyjaisingh

  • Hero Member
  • *****
  • Posts: 540
To maximize utility, why does a consumer consume the combination of goods that equates marginal utility per dollar on the different goods rather than just equating the marginal utility of the different goods?
 
  What will be an ideal response?

Question 2

In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic
 
  A) loss, and entry into the market.
  B) loss, and exit from the market.
  C) profit, and entry into the market.
  D) profit, and exit from the market.



shaquita

  • Sr. Member
  • ****
  • Posts: 324
Answer to Question 1

The consumer equates the marginal utility per dollar on the goods because goods have different prices. For instance, the marginal utility of a Porsche might be 120,000 units and the marginal utility of a Hyundai might be 60,000 units. The consumer certainly prefers the Porsche to the Hyundai because the former has a greater marginal utility than the latter. However, we did not consider the prices. If the Porsche costs 120,000 and the Hyundai costs 10,000, the marginal utility per dollar on the Porsche is 1 and the marginal utility per dollar on the Hyundai is 6. A Hyundai gives the consumer more utility per dollar. Thus, when maximizing total utility, the consumer compares the marginal utility per dollar, not the marginal utility.

Answer to Question 2

C



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

More than nineteen million Americans carry the factor V gene that causes blood clots, pulmonary embolism, and heart disease.

Did you know?

People who have myopia, or nearsightedness, are not able to see objects at a distance but only up close. It occurs when the cornea is either curved too steeply, the eye is too long, or both. This condition is progressive and worsens with time. More than 100 million people in the United States are nearsighted, but only 20% of those are born with the condition. Diet, eye exercise, drug therapy, and corrective lenses can all help manage nearsightedness.

Did you know?

For about 100 years, scientists thought that peptic ulcers were caused by stress, spicy food, and alcohol. Later, researchers added stomach acid to the list of causes and began treating ulcers with antacids. Now it is known that peptic ulcers are predominantly caused by Helicobacter pylori, a spiral-shaped bacterium that normally exist in the stomach.

Did you know?

The B-complex vitamins and vitamin C are not stored in the body and must be replaced each day.

Did you know?

The cure for trichomoniasis is easy as long as the patient does not drink alcoholic beverages for 24 hours. Just a single dose of medication is needed to rid the body of the disease. However, without proper precautions, an individual may contract the disease repeatedly. In fact, most people develop trichomoniasis again within three months of their last treatment.

For a complete list of videos, visit our video library