Question

Assume that a person's consumption of just the right amounts of pork and chicken is in equilibrium. We can conclude that the a. marginal utility of pork must equal the marginal utility of chicken. b. price of pork must equal the price of chicken. V c. ratio of marginal cost to price must be the same in both the pork and the chicken markets. d. ratio of marginal utility to price must be the same for pork and chicken.

Short answer

In equilibrium, a person's consumption of just the right amounts of pork and chicken leads to the same ratio of marginal utility to price for both goods. Therefore, the correct answer is: d. The ratio of marginal utility to price must be the same for pork and chicken.

Step-by-step solution

Understand the equilibrium concept in consumption

When a person's consumption of just the right amounts of pork and chicken is in equilibrium, it means that the individual is maximizing his or her utility given the prices of these goods and budget constraints. In this situation, the individual cannot improve his or her utility by reallocating consumption between pork and chicken.

Analyze the options provided

Let's analyze each option and see which one holds true in this situation: a. The marginal utility of pork must equal the marginal utility of chicken. This option suggests that the equilibrium condition is met when the marginal utilities of both goods are equal. However, this is not always true as it ignores the prices of the goods. The decision to consume one good over another depends on the additional utility gained by consuming it, the price of the good, and the budget constraint the consumer is facing. b. The price of pork must equal the price of chicken. This option suggests that the equilibrium condition is based on the prices of the goods. However, the consumption decision depends not only on the price but also on the marginal utility of the good. This option oversimplifies the problem and is not accurate. c. The ratio of marginal cost to price must be the same in both the pork and the chicken markets. This option focuses on the marginal cost and the price but does not take into consideration the consumer's utility gained from consuming the goods. Thus, this option is not accurate either. d. The ratio of marginal utility to price must be the same for pork and chicken. This option implies that in equilibrium, the consumer equates the marginal utility per dollar spent on one good to the marginal utility per dollar spent on another good. This is in line with the concept of utility maximization where consumers allocate their budgets between goods so as to maximize their total utility. Therefore, this option correctly describes the equilibrium condition for consumption.

Choose the correct option

Based on our analysis, the correct conclusion we can draw when a person's consumption of just the right amounts of pork and chicken is in equilibrium is: d. The ratio of marginal utility to price must be the same for pork and chicken.

Key concepts

Marginal Utility

Marginal utility refers to the additional satisfaction or utility a person receives from consuming one more unit of a good or service. Think of it like the happiness you feel when you bite into an extra slice of your favorite pizza; that's the marginal utility in action! It's a central concept in microeconomics because it helps us understand how individuals make decisions about consumption.

The marginal utility typically decreases as more of a good is consumed, which economists call the 'Law of Diminishing Marginal Utility'. For example, that first bite of pizza might be incredibly satisfying, but by the fourth or fifth slice, you're probably not enjoying each additional slice as much as the first.

It's important to note that marginal utility can differ from person to person, as we all have unique preferences and levels of satisfaction.

Utility Maximization

Utility maximization is like an economic puzzle where individuals aim to get the maximum happiness or satisfaction within their means. Consumers have to choose how to spend their money wisely to get the biggest bang for their buck in terms of happiness.

Imagine you're at an amusement park with limited time and a fixed budget. You'll try to pick the rides that give you the most thrill per dollar spent, perhaps choosing a roller coaster over a carousel. In the same way, when consumers are faced with various choices, they allocate their budget to those goods and services that provide the highest marginal utility per dollar.

This is more than just making a purchase; it's a strategic decision that balances desire with economics and available resources.

Budget Constraints

Budget constraints are the financial borders within which we must live and make our choices. They represent all the combinations of goods and services that a consumer can afford, given the prices of goods and the consumer's income.

Think of it as a shopping spree with a gift card. You can choose a variety of products as long as you don’t exceed the card's limit. In real life, we all face these limits when deciding how to use our available resources.

A crucial part of managing budget constraints is making trade-offs. You might sacrifice a fancy coffee on your way to work so you can save up for a weekend movie ticket. It's all about prioritizing what you value the most while keeping an eye on the balance in your wallet.

Marginal Utility to Price Ratio

The marginal utility to price ratio is the economist's yardstick that measures the bang for your buck in precise, mathematical terms. It's the rate of the extra pleasure (marginal utility) you get from each dollar you spend on a good or service.

Just like a savvy shopper comparing prices to save money, consumers look at how much satisfaction they’ll get from spending a dollar on one good versus another. If you’re choosing between two snacks at a convenience store, this ratio will help you decide which one is the better deal based on the enjoyment it provides relative to its cost.

In mathematical terms, it is expressed as \( \frac{MU}{P} \), where MU is the marginal utility derived from the good, and P is the price of the good. In equilibrium, where the consumption of goods like pork and chicken is perfectly balanced, consumers equate the marginal utility to price ratio across all goods they consume.