Question

Consider Figure 20-2, and suppose that the initial point is A. Explain why a decrease in the price of each digital app from \( 5 to \) 4 results in a change in the marginal utilities of digital apps in a direction that is consistent with re-attainment of a new consumer optimum at point B.

Short answer

A decrease in the price of each digital app from $\$5$to $\$4$ results in a change in the marginal utilities of digital apps.

Step-by-step solution

Given Information

A rational purchaser will answer a decrease in costs from $\$5to\$4$by expanding utilization, marginal utility falls.

Explanation

The development is from point A, at which marginal utility is $M{U}_A$, to point B, at which marginal utility is $M{U}_B$, which is not exactly $M{U}_A$. A fall in marginal utility with the cost will result in the adjustment of the marginal utility per dollar enjoyed with all buys. At a lower cost, the number of computerized applications per period expanded from four to five. The marginal utility absolute requirement fell. At a higher utilization rate, the marginal utility falls because of the ascent in utilization of advanced applications so the marginal utility per dollar spent is balanced across all buys.