Suppose that an individual consumes only two goods. What will happen to the individual if her last dollar spent on one good yields more marginal utility than that from another good?
What will be an ideal response?
The individual will consume more of the good that yields more marginal utility. However, because of the principle of diminishing utility, the marginal utility declines as she consumes more of the good with higher marginal utility. She will continue to consume the good with higher marginal utility until an optimum point at which the last dollar spent on each good purchased yields the same amount of marginal utility.
You might also like to view...
Refer to Figure 11-5. Based on the "catch-up line" drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________,
growth in GDP is relatively ________. A) B; low; A; high B) B; high; A; low C) A; high; B; low D) A; low; B; high
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 8 percent, then the bank can make a maximum loan of
A) $0. B) $2 million. C) $8 million. D) $10 million.