Final answer:
The optimal consumption bundle in economics is determined by comparing the marginal utility to price ratio for each good, with the goal of making these ratios equal across all goods. A decrease in product price can increase purchases due to income and substitution effects. Total utility increases with additional consumption, but marginal utility decreases due to the law of diminishing marginal return.
Step-by-step explanation:
The question involves finding the optimal consumption bundle using various methods to maximize utility given the budget constraint in microeconomics. To confirm Jeremy's utility-maximizing choice of phone minutes and round trips, one would employ the marginal utility approach. This involves comparing the marginal utility per dollar spent (MU/P) for each good and adjusting the consumption of each until the ratio of MU/P for all goods is nearly equal or exactly equal, subject to the budget constraint.
When a product's price decreases, the quantity purchased typically increases for several reasons, including the income effect, where consumers feel richer and can buy more, and the substitution effect, where the product becomes relatively cheaper compared to other goods. Additionally, consumers may anticipate future price increases and buy more now to avoid higher costs later.
If a college student's parents forget to send an allowance, which part of their income, this would shift the budget constraint inward, reflecting a lower level of income. Assuming the student only purchases normal goods, which are goods for which demand increases as income increases, the consumption of such goods would decrease due to the reduced income.
Several review questions are posed, such as 'Who determines how much utility an individual will receive from consuming a good?', to which the answer is that utility is subjective and determined by the individual consumer's preferences and satisfaction from consuming a good. Additional consumption of a good generally leads to an increase in total utility but a decrease in marginal utility due to the law of diminishing marginal utility.
Totally, utility can continue to increase as additional units of a good are consumed even while marginal utility, which is the additional utility received from one more unit of consumption, decreases, as the gain in utility from consuming more units is still positive, but at a decreasing rate.