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A consumer spends all of his money on two goods: apples and oranges. The consumer will pay 10 for apples, but only 1 for oranges. Why does the consumer pay more for apples?

1. His marginal utility from apples is higher than his marginal utility from oranges.
2. His marginal utility from oranges is higher than his marginal utility from apples.
3. The consumer is irrational and simply likes apples better.
4. His total utility is higher from apples than oranges.
5. His total utility is higher from oranges than apples.

User Timofey
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1 Answer

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Final answer:

The consumer likely pays more for apples because the marginal utility from apples is higher than from oranges, suggesting that the satisfaction gained from the last apple bought equals the price and exceeds the marginal utility of an additional orange.

Step-by-step explanation:

The consumer is willing to pay more for apples than for oranges likely because the marginal utility he derives from apples is higher than that from oranges. Economic rationale dictates that a consumer will continue to purchase a good until the marginal utility of consuming one more unit is equal to the opportunity cost of doing so. Given that the consumer spends all his money on apples and oranges, and prefers to spend more on apples, it implies that the satisfaction (utility) gained from the last apple purchased is equal to the cost and exceeds the utility from an additional orange which is lower priced.

In the context of utility and consumer choices, this is consistent with the law of diminishing marginal utility, which states that as a consumer continues to consume a good, the utility from additional units begins to decline. Hence, when choosing between two goods, a consumer will allocate their budget in a way that equates the marginal utility per dollar spent on each good, which seems like the reason here for apples being valued higher than oranges.