Assume that good $A$ and good $B$ are substitutes for each other. Andrea is currently consuming the utility-maximizing combination of these two goods.

How will the $M U_{A}$ and $M U_{B}$ change if Andrea alters her consumption as a result of an increase in the price of good $B$ ?

Choose 1 answer:
(A) $M U_{B}$ will increase and $M U_{A}$ will decrease as the consumer reallocates consumption.
(B) $M U_{A}$ will increase and $M U_{B}$ will decrease as the consumer reallocates consumption.
(c) $M U_{A}$ and $M U_{B}$ will both definitely increase.
(D) $M U_{A}$ and $M U_{B}$ will both definitely decrease.
(E) $M U$ will both increase, but the $M U_{A}$ will increase by more than the increase in $M U_{R}$.

Question

Assume that good $A$ and good $B$ are substitutes for each other. Andrea is currently consuming the utility-maximizing combination of these two goods.

How will the $M U_{A}$ and $M U_{B}$ change if Andrea alters her consumption as a result of an increase in the price of good $B$ ?

Choose 1 answer:
(A) $M U_{B}$ will increase and $M U_{A}$ will decrease as the consumer reallocates consumption.
(B) $M U_{A}$ will increase and $M U_{B}$ will decrease as the consumer reallocates consumption.
(c) $M U_{A}$ and $M U_{B}$ will both definitely increase.
(D) $M U_{A}$ and $M U_{B}$ will both definitely decrease.
(E) $M U$ will both increase, but the $M U_{A}$ will increase by more than the increase in $M U_{R}$.

Accepted Answer

∻Solution∻ ‖ a ⋮ Understanding Marginal Utility: Marginal utility (MU) represents the additional satisfaction a consumer gets from consuming one more unit of a good or service. ‖ ‖ b ⋮ Substitution Effect: When the price of good B increases, consumers will tend to buy less of good B and more of good A, since they are substitutes. ‖ ‖ c ⋮ Change in Marginal Utility: As the quantity consumed of good B decreases, its marginal utility $MU_B$ increases due to the law of diminishing marginal utility. Conversely, as the quantity consumed of good A increases, its marginal utility $MU_A$ decreases. ‖ ∻Answer∻ ⚹ (A) $MU_B$ will increase and $MU_A$ will decrease as the consumer reallocates consumption. ⚹ ∻Key Concept∻ ⚹ Law of Diminishing Marginal Utility ⚹ ∻Explanation∻ ⚹ As consumption of good A increases due to substitution for the more expensive good B, the additional satisfaction from consuming good A decreases, while the satisfaction from consuming less of good B increases. ⚹◊How does the concept of consumer choice theory impact the overall market equilibrium in the context of goods being substitutes?⍭ Generate me a similar question◊

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