What is the utility maximizing rule?
Understand the Problem
The question is asking for an explanation of the utility maximizing rule, which is a concept in economics that describes how consumers make choices to achieve the highest satisfaction or utility given their budget constraints.
Answer
The marginal utility per dollar spent should be equal across all goods.
The utility maximizing rule states that to achieve the greatest utility, a consumer should allocate their money so that the marginal utility per dollar spent is equal across all goods and services.
Answer for screen readers
The utility maximizing rule states that to achieve the greatest utility, a consumer should allocate their money so that the marginal utility per dollar spent is equal across all goods and services.
More Information
Utility maximization is a key concept in consumer behavior and economic theory, ensuring that consumers derive the most satisfaction from their spending.
Tips
A common mistake is neglecting to consider the budget constraint. Ensure the total expenditure does not exceed the available income.
Sources
- Rules for Maximizing Utility | Microeconomics - courses.lumenlearning.com
- Utility maximization: equalizing marginal utility per dollar (video) - khanacademy.org
- Utility Maximization - Overview, How It Works, Calculation - corporatefinanceinstitute.com
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