Why is it that the consumer can maximize total net utility only if the purchase quantity brings marginal utility as close as possible to equality with price?
What will be an ideal response?
The decision to purchase a quantity of a good that leaves marginal utility greater than price cannot maximize total net utility, because buying an additional unit would add more to total utility than it would increase cost. Similarly, it cannot be optimal for the consumer to buy a quantity of a good that leaves marginal utility less than price, because then a reduction in the quantity purchased would save more money than it would sacrifice in utility. Consequently, the consumer can maximize total net utility only if the purchase quantity brings marginal utility as close as possible to equality with price.
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Let "C = Ca + by" define the consumption function. The term "Ca" is known as
A) induced consumption. B) autonomous consumption. C) the marginal propensity to save. D) the marginal propensity to consume.
Based on the graphs for an increase in aggregate demand and the Phillips curve, we can see that when inflation is high, ______.
a. RGDP is low
b. unemployment is high
c. aggregate demand is weak
d. aggregate demand is strong
Producing at a point inside the production possibilities curve
A. Suggests we are forgoing the ability to produce more of both goods. B. Means society must be using its resources efficiently. C. Is unattainable given the present level of technology. D. Is feasible when the nation is at war but not feasible when the nation is at peace.
Elasticity of supply will increase when:
A. it becomes easier to substitute one factor of production for another in a manufacturing process. B. producers are given less time to respond to price changes. C. the number of consumers wanting to purchase a product increases. D. the number of producers selling a product decreases.