Which goods would consumers want to consume

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You learned in the chapter that the process of utility maximization involves a comparison of marginal utilities per dollar, which are calculated as marginal utility divided by price. Consider two goods that most people consume at least some of during their lives: apples and cars.

a. If utility maximization was only about marginal utility (not marginal utility per dollar), which good (apples or cars) would consumers want to consume? Would they ever consume the other good?

b. If utility maximization was only about price (as opposed to marginal utility divided by price), which good (apples or cars) would consumers want to consume? Would they ever consume the other good?

c. Given your answers to parts a and b, and given the observation that some people eat apples and drive cars, explain why utility maximization involves a comparison of marginal utility divided by price, and not just one or the other.

Reference no: EM131832404

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