Question

Which of the following is an assumption of the decision-making process followed by consumers to maximize utility? rev: 04_09_2018 Multiple Choice The consumer oftentimes is not sure about her preferences. Marginal utility always increases as more units of a good are consumed. The consumer’s income increases as prices of goods increase. The consumer considers the prices of the products.

Answer 1

Answer:

The correct answer is: The consumer considers the prices of the products.

Explanation:

When taking the decision regarding how to maximize utility the consumers will consider the prices of the products. The consumer will be able to maximize utility at the point where the marginal utility of money spent on each commodity is equal.

We can represent it as,

$\frac{MU\ of\ good\ A}{Price\ of\ good\ A} = \frac{MU\ of\ good\ B}{Price\ of\ good\ B}$