The utility function assigns a utility number that is higher for:
A)more expensive bundles.
B)more preferred bundles.
C)less preferred bundles.
D)bundles which the individual is indifferent between.

Question

Quizplus · Accepted Answer

The utility function is designed to measure the level of satisfaction or happiness that an individual receives from consuming different bundles of goods. Therefore, a higher utility number would be assigned to the bundle that the individual prefers or likes more. It is not necessarily related to the price of the bundle, so A is incorrect. C is also incorrect because if a bundle is less preferred, it would result in a lower utility number. D is incorrect because if the individual is indifferent between two bundles, then the utility number for each bundle would be the same. Hence, the best choice is B which refers to more preferred bundles.

The Utility Function Assigns a Utility Number That Is Higher