Question

Which Income Change Would Cause Martin's Utility Level To Change By The Largest Absolute Amount? A. $2,000 Loss B. $1,000 Loss C. $1,000 Gain D. $2,000 Gain

Which income change would cause Martin's utility level to change by the largest absolute amount?

A. $2,000 loss

B. $1,000 loss

C. $1,000 gain

D. $2,000 gain

Answer 1

A $2,000 gain in income would cause Martin's utility level to change by the largest absolute amount.

Step-by-step explanation:

The income change that would cause Martin's utility level to change by the largest absolute amount is a $2,000 gain. An increase in income will shift the budget constraint outward, allowing Martin to consume more goods and services.

With a positive income change of $2,000, Martin will have more purchasing power and can increase his consumption of both concert tickets and overnight getaways. This will result in a larger change in his utility level compared to the other options.

Answer 2

The largest change in utility would be caused by a $2,000 change in income, whether it is a loss or a gain. This is due to the significant shift in the budget constraint, which affects a consumer's utility-maximizing choices.

Step-by-step explanation:

In the context of utility theory in economics, the change in income that would cause the largest change in a consumer's utility level depends on the concept of marginal utility. Considering the utility-maximizing behavior described for Kimberly, we can extrapolate that a larger absolute change in income results in a larger change in utility. Therefore, option A, a $2,000 loss, would cause the largest decrease in utility, and option D, a $2,000 gain, would cause the largest increase in utility, each changing the consumer's budget constraint significantly. The utility concept assumes that more budget typically leads to more utility, as the consumer has more purchasing power. Conversely, a loss reduces purchasing power, leading to a decrease in utility. When comparing the options, the changes in utility caused by a $2,000 change in either direction will be larger in absolute terms than those caused by a $1,000 change.