Which of the following is an assumption of the decision-making process followed by consumers to maximize utility?

Question

BlackTom AI · Accepted Answer

To begin, we identify what the standard consumer decision-making model assumes when aiming to maximize utility. The model emphasizes budget constraints, rational choice, knowledge of preferences, and reacting to prices.
Option 1: 'The consumer oftentimes is not sure about her preferences.' This is incorrect because a core assumption is that consumers have well-defined preferences that they seek to maximize, not ambiguity about them.
Option 2: 'The consumer considers the prices of the products.' This aligns with the budget constraint idea: consumers compare prices to allocate income across goods to maximize satisfaction.
Option 3: 'Marginal utility always increases as more units of a good are consumed.' This contradicts the common principle of diminishing marginal utility, where each additional unit provides less extra satisfaction, not more.
Option 4: 'The consumer’s income increases as prices of goods increase.' This reverses the causal relationship: typically, prices change independently of income, and a higher price level reduces real purchasing power unless income also rises; the model treats income as given (budget constraint) and analyzes how prices affect choices, not that income rises with prices.
Thus, the option that correctly reflects the assumption central to maximizing utility under a budget constraint is that the consumer considers the prices of the products.

Which of the following is an assumption of the decision-making process followed by consumers to maximize utility?

View Explanation

Log in for full answers

Similar Questions

This question has been regraded. Suppose that basket B (x = 5, y = 10) is on Matt's linear budget line, Matt's MRSX,Y (B) = 1/4, PX =$2 and PY = $2. Matt's preferences are represented by smooth curves.

[Continuation of question 14] Given that the original optimal basket (x = 50, y = 50) is just affordable on the new budget line, will the original optimal basket remain the optimal basket at the new income and prices?

Suppose that Tom's preferences are convex and that Tom's income is $100, the price of food, good X, is $1 per unit and the price of other goods, good Y, is $1 per unit. Under these circumstances, Tom optimally purchases 50 units of food. Then Tom optimally spends:

Suppose that basket B (x = 5, y = 10) is on Matt's linear budget line, Matt's MRSX,Y (B) = 1/4, PX =$2 and PY = $2. Matt's preferences are represented by smooth curves.

According to the economic assumptions about consumer choice, could Mary have optimally chosen to purchase one mask and 48 units of other goods per day?

Which of the following statements is TRUE?

A consumer's choices are directly influenced by all of the following except Blank ______. BlackTom题目解析

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler