Asked Mar 19, 2020

3. A consumer is maximizing his satisfaction. Due to a change in tastes, his marginal utility increases for one of the products he is consuming. As he acts, what will happen to the marginal utilities of other goods that he is consuming? Those goods’ marginal utilities will:

a. increase and then eventually decrease
b. decrease and then eventually increase
c. increase.
d. decrease.
e. not change.


Expert Answer

Step 1

The consumer consumes two goods and he is presently maximizing his satisfaction. The satisfaction will be maximized at the point where the utility derived from the last rupee spent on both goods will be equal. This is known as the law of equi-marginal utility.

Step 2

At this point of consumption, the level of satisfaction from the last units of both commodities will be the same. The change in the taste and preference leads to the increase in the marginal utility of the commodity A against B. when the marginal utility of A is highe...

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