Final answer:
Consumer maximizes utility with a certain money income when they have allocated spending according to their preferences to reach a state where reallocating funds does not increase satisfaction. Increases in money income shift the budget constraint outward, leading to a reconsideration of consumption choices based on individual preferences and the categorization of goods as either normal or inferior.
Step-by-step explanation:
A consumer is maximizing her utility with a particular money income when she reaches a point where she cannot improve her satisfaction by reallocating her spending. This happens when the consumer has balanced her spending according to her preferences, so the last dollar spent on each good or activity yields the same level of marginal utility. For example, when Vivian evaluates her labor-leisure tradeoff, she does so by comparing the marginal utility of leisure versus the marginal utility of income. If she prefers more leisure to additional income, she is likely to work less even if it means earning less. Conversely, if she values more income over leisure, she may decide to work more. She adjusts her choices until she feels that she cannot increase her utility further by changing the amount of labor and leisure.
When there is a rise in a consumer's money income, the budget constraint shifts outward, allowing for more consumption possibilities. Kimberly, for instance, when experiencing a rise in income, will reassess the utility gained from concert tickets and overnight getaways. If both concert tickets and getaways are normal goods, she's likely to increase consumption of both, but the exact amount will depend on her personal preferences. Similarly, when Manuel and Natasha receive more income, they might allocate it differently based on their preferences. Manuel could spend most of his additional income on movies, whereas Natasha might spend hers on yogurt, illustrating the point that individual preferences dictate where the extra income is spent.