Optimal Choice: Maximizing Utility within Budget Constraint

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What is the consumer's problem when making a choice?

Maximizing budget

Maximizing satisfaction (utility) (correct)

Maximizing income

Minimizing expenditure

In the context of the text, what does the budget line represent?

Income levels

Expenditure limit (correct)

Satisfaction levels

Market prices

What does the consumer need to do to achieve the optimal choice according to the text?

Ignore the budget constraint

Minimize utility

Maximize both income and expenditure

Maximize satisfaction (utility) within the budget constraint (correct)

Which basket should the consumer choose to maximize utility within a $800 monthly budget constraint?

Basket A Signup and view all the answers

What happens to baskets located outside the budget line in terms of affordability?

They are not affordable Signup and view all the answers

At the optimal basket A, what relationship exists between the slope of the indifference curve U2 and the slope of the budget line?

They have a negative reciprocal relationship Signup and view all the answers

What is an interior optimum in consumer choice theory?

When the indifference curve is tangent to the budget line Signup and view all the answers

In consumer choice theory, what does it mean when the budget line and an indifference curve are tangent?

The consumer is maximizing utility while staying within the budget constraint Signup and view all the answers

What is the significance of selecting basket A over B, E, or C for a consumer who wants to maximize utility within a budget constraint?

Basket A achieves a higher level of utility than B, E, or C Signup and view all the answers

What is an expenditure minimization problem in consumer choice theory?

Minimizing total spending while achieving a given level of utility Signup and view all the answers

When does an optimal choice result in corner points in consumer choice theory?

When one good is not being consumed at all Signup and view all the answers

What does it signify when the slope of an indifference curve at a point of optimal choice equals the slope of the budget line?

The consumer is maximizing utility at that point Signup and view all the answers

If a consumer's marginal utility per dollar spent on food is higher than on clothing, what is the likely effect on the consumer's purchasing behavior?

The consumer will purchase more food and less clothing. Signup and view all the answers

In the context of optimal choice, what does it mean when a consumer reaches a corner point?

No further substitution is possible. Signup and view all the answers

When the slope of the indifference curve and that of the budget line are different, what type of optimal choice situation is likely present?

Interior optimum Signup and view all the answers

In a situation where a consumer views two goods as perfect substitutes, what does it mean if the marginal rate of substitution (MRS) is 2?

The consumer values one good twice as much as the other. Signup and view all the answers

If the price of chocolate ice cream is three times the price of vanilla ice cream, which type of ice cream will Sara buy if she views them as perfect substitutes?

Sara will buy only chocolate ice cream. Signup and view all the answers

When a consumer reaches an interior optimum, what does this imply about their consumption pattern?

The consumer is maximizing utility given the budget constraint. Signup and view all the answers