For David, the marginal utility from an additional car is 2,000 units and the ma

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 his budget. Hence to maximize his utility, David will

a. possibly do something, but there is not enough information available to determine what he would do.
b. save his budget by not spending it until he can afford both the car and the vacation.
c. shift his consumption from the car to the vacation.
d. shift his consumption from the vacation to the car.
e. buy both the car and the vacation now.

Explanation / Answer

If the marginal utility of an additional car is 2000 and the marginal utility of an additional vacation is 1000 units, then David can increase his utility by consuming more cars and fewer vacations. The correct answer is D.

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