-For David, the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units. David is allocating all of his budget. Hence, to maximise his utility, David will
A) save his budget by not spending it until he can afford both the car and the vacation.
B) shift his consumption from the vacation to the car.
C) buy both the car and the vacation now.
D) shift his consumption from the car to the vacation.
E) possibly do something, but there is not enough information available to determine what he would do.

Question

-For David, the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units. David is allocating all of his budget. Hence, to maximise his utility, David will
A) save his budget by not spending it until he can afford both the car and the vacation. 
B) shift his consumption from the vacation to the car. 
C) buy both the car and the vacation now. 
D) shift his consumption from the car to the vacation. 
E) possibly do something, but there is not enough information available to determine what he would do.

Quizplus · Accepted Answer

The correct answer is E because the information provided does not include the prices of the car and the vacation or the budget constraint. Without knowing the prices or how the marginal utilities compare to the prices, we cannot determine the optimal allocation of David's budget to maximize his utility.

-For David, the Marginal Utility from an Additional Car Is