If people do not have a complete mental picture of total utility for every level of consumption, how can they find their utility-maximizing consumption choice?

Short Answer

Expert verified

The utility-maximizing consumption option can be obtained by estimating the marginal utility for each level of consumption if consumers do not have any conceptual picture of utility.

Step by step solution

01

Step 1:Definition

Total Utility and Marginal Utility:

In economics, total utility and marginal utility are concepts under utility that assist determine a consumer's level of satisfaction. The total utility refers to the whole amount of pleasure derived by a customer from the consumption of a specific amount of products. Marginal utility, on the other hand, refers to the additional utility gained by a consumer from the consumption of one additional unit of the good.

02

Step 2;Explanation

One can pick a random beginning position and analyze the marginal utility gains and costs of going to surrounding points before deciding on the best option. Consumers that are rational compare value for money. If one good is more valuable than another, people will purchase more of the former and less of the latter. People make decisions on the margins, not on the basis of totals.

03

Conclusion

Therefore, one can pick a random beginning position and analyze the marginal utility gains and costs of going to surrounding points before deciding on the best option.

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Most popular questions from this chapter

Consumption when young and consumption when old are both normal goods for Seymour, a worker saving for retirement. When the interest rate falls, what happens to Seymour’s consumption when old?

a. It definitely increases.

b. t definitely decreases.

c. It increases only if the substitution effect exceeds the income effect.

d. It decreases only if the substitution effect exceeds the income effect.

Why does a change in income cause a parallel shift in the budget constraint?

Marge buys pizza for \(10 and Pepsi for \)2. She has income of \(200. Her budget constraint will experience a parallel outward shift if.

a. the price of pizza falls to \)5, the price of Pepsi falls to \(1 and her income falls to 100.

b. the price of pizza rises to \)20, the price of Pepsi rises to \(4 and her income remains the same.

c. the price of pizza falls to \)8, the price of Pepsi falls to \(1 and her income rises to \)240.

d. the price of pizza rises to 20, the price of Pepsi rises to \(4 and her income rises to \)500.

Maya divides her income between coffee and croissants (both of which are normal goods). An early frost in Brazil causes a large increase in the price of coffee in the United States.

a. Show the effect of the frost on Maya’s budget constraint.

b. Show the effect of the frost on Maya’s optimal consumption bundle, assuming that the substitution effect outweighs the income effect for croissants.

c. Show the effect of the frost on Maya’s optimal consumption bundle, assuming that the income effect outweighs the substitution effect for croissants.

Can an increase in the price of cheese possibly induce a consumer to buy more cheese? Explain.

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