During a Study Session for an Economics Exam with Three

question 147

Multiple Choice

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?

• A) Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola.
• B) Peter's statement is correct.
• C) Peter's statement is correct, but we must also assume that the consumer is rational.
• D) Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent.

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Definitions:

Available Substitutes

Alternative products or services that consumers can opt for when faced with changes in price or availability of the original product.

Luxury Good

A good for which demand increases more than proportionally as income rises, and is often seen as a status symbol rather than a necessity.

Coffee And Tea

Two popular beverages consumed worldwide, derived from brewing the roasted seeds of the Coffea plant and the dried leaves of the Camellia sinensis plant, respectively.

Skis And Ski Boots

Items used in the sport of skiing, where skis are long narrow platforms to glide over snow, and ski boots are specialized footwear that attach to the skis.