A utility function is a mathematical formula that assigns to each consumption bundle a numeric value that represents the:
A) opportunity cost of consuming the bundle.
B) consumer's relative well-being from consuming the bundle.
C) price the consumer would pay for the bundle.
D) rates of substitution of the goods in the bundle.

Question

Quizplus · Accepted Answer

A utility function represents the consumer's preferences and satisfaction from consuming a particular bundle. It assigns a numeric value to each bundle, which represents the consumer's relative well-being, satisfaction, or utility from consuming that bundle. Therefore, option B is the correct choice. Option A is incorrect because the opportunity cost of consuming a bundle is based on the prices of the goods and not on the utility function. Option C is also incorrect because the price of a bundle is determined by the market and not by the utility function. Option D is incorrect because the rates of substitution are related to the indifference curves and not the utility function.

A Utility Function Is a Mathematical Formula That Assigns to Each