According to the theory of utility maximization,
A) people who buy tap water apparently feel the additional benefit (compared with bottled water) offsets the additional cost
B) people who buy bottled water apparently feel the additional benefit (compared with tap water) offsets the additional cost
C) the marginal utility of the last gallon of bottled water consumed exceeds the marginal utility of the first gallon of tap water consumed
D) the marginal utility of bottled water exceeds the marginal utility of diamonds
E) bottled water must be more expensive (per gallon) than tap water

Question

Quizplus · Accepted Answer

The theory of utility maximization suggests that individuals make rational decisions to maximize their overall happiness or satisfaction. In the case of bottled water, people who choose to purchase it over tap water do so because they believe the additional benefits (such as perceived taste, convenience, and perceived health benefits) outweigh the additional cost. Therefore, option B is the correct choice. Option A may be true for some individuals, but it is not a universal statement. Option C and D involve comparisons that may not hold true in all circumstances, and option E is not necessarily true as the price of bottled water can vary depending on location and brand.

According to the Theory of Utility Maximization