Question

Tom is maximizing utility by buying three packs of bubble gum and four packages of Skittles. Given diminishing marginal utility, if the price of Skittles rises, the principle of rational choice tells us that Tom will buy:_________.

a. more as, raising the opp cost of not consuming skittles.
b. fewer as, raising the opp cost of not consuming skittles.
c. more as, lowering the opp cost of not consuming.
d. fewer as, lowering the opp cost of not consuming.

Answer 1

B) fewer SKITTLES, raising the opp cost of not consuming skittles.

Step-by-step explanation:

The principle of rational choices states that a person will carry out their purchasing decision in order to maximize the benefits or utility obtained. Individuals will always pursue their best self interest.

Since Tom is maximizing the utility obtained from candy, and the price of one type of candy increases, he will reduce the number of units bough from that type of candy until the utils obtained increase again. As the utils per dollar start to rise, the opportunity cost of not consuming that candy will also rise.