Question

Suppose the price of jeans is $100 and the price of boots is $100. if charles buys 3 pairs of jeans and 2 pairs of boots each year, charles is not spending all of this budget. charles must receive the same marginal utility from the 3rd pair jeans as he does from the 2nd pair of boots. charles cannot be maximizing utility. jeans must provide more marginal utility than boots. boots must provide more marginal utility than jeans.

Answer 1

Being that Charles is buying more pairs of jeans than boots at the same price, we can infer that jeans have more marginal utility than boots. People will continue to purchase items (provided budget constraints) until their marginal utility is equal to margin cost.

Answer 2

The answer is: Charles cannot be maximising his utility

Step-by-step explanation:

Utility is the satisfaction derived by individuals or firms from the decisions that they make. Utility maximisation requires two conditions: the utilisation of the individual or firm budget and consuming or spending up to the point where marginal utility (utility derived from consuming one more unit) is greater than or equal to price.

Charles is not allocating all his budget to the purchase of jeans and boots. It could be that he derives utility from other goods hence allocating the remaining income to these goods. If Charles derived utility from only boots and jeans and allocated all his budget to the consumption of these two items, then he would maximise his utility such that the 3rd pair of jeans would have the same marginal utility as the 2nd pair of boots. If either of the two goods provided more utility than the other, then Charles would not be maximising his utility given his budget constraints.

In any case, Charles may only maximise utility if: his yearly budget is $500 and the marginal utility from jeans and boots are equal. Since Charles' budget is above $500, he is under allocating his budget and not maximising his utility.