Question

The consumer choice models describes how an individual allocate his/her income over goods and services in order to maximize utility. One component of the consumer choice model is the individuals utility function. From the utility function alone, which of the following can be determined?

1) i. the utility derived from all bundles of goods and services
2) ii. the bundles of goods and services that yield the same level of utility
3) iii. the utility maximizing bundle of goods and services a consumer will choose to purchase

Answer 1

The utility function can determine the utility from all bundles of goods and services and identify bundles that yield the same utility, but it alone cannot determine the utility-maximizing bundle without additional information like budget constraints and prices.

Step-by-step explanation:

The utility function of an individual in consumer choice models provides insight into several aspects of their consumption choices:

1. It can determine the utility derived from all bundles of goods and services.
2. It identifies bundles of goods and services that yield the same level of utility, known as indifference curves.

However, to find the utility-maximizing bundle of goods and services a consumer will choose to purchase, additional information is required beyond the utility function alone. This would involve considering the budget constraint and the prices of goods, and employing techniques such as comparing total utility or the ratios of marginal utility to price for different goods.