|
Correct Answer: the marginal utility of money is assumed to be variable.
utility analysis, a fundamental concept in consumer demand theory, operates under several key assumptions about how consumers make choices to maximize their satisfaction or utility from goods and services. these assumptions include:
1. **utility is measurable in terms of money**: according to utility analysis, utility can be quantitatively measured. this measurement is often expressed in monetary terms, suggesting that each unit of currency spent on a product or service translates to a specific amount of utility gained by the consumer. this assumption allows economists to create a numerical value for satisfaction or happiness derived from consuming goods.
2. **the marginal utility of money is assumed to be constant**: in utility analysis, it is assumed that the marginal utility of money remains constant. this means that the additional utility derived from each additional unit of money spent is consistent. this assumption simplifies the analysis by keeping the value of money stable as consumption increases, which is crucial for calculating changes in utility due to changes in consumption.
3. **the consumer is a rational being who aims at maximization of utility**: utility theory presupposes that consumers are rational and aim to maximize their utility. this rationality implies that given a choice, consumers will always make the decision that provides the most benefit or satisfaction. rational behavior in this context is the systematic and purposeful pursuit of increasing one's satisfaction based on the available information and resources.
4. **the consumer has perfect knowledge of the choice of commodities open to him**: another assumption of utility analysis is that consumers possess complete and perfect knowledge about the commodities available to them, including their prices, quality, and utility. this perfect knowledge helps consumers in making informed decisions that align with their utility maximization goals.
given these assumptions, the statement "the marginal utility of money is assumed to be variable" is incorrect within the context of traditional utility analysis. this statement contradicts the actual assumption of utility theory, which holds that the marginal utility of money is constant, not variable. the constancy of the marginal utility of money is essential for maintaining a stable measure of utility across different levels of consumption and expenditure, thereby simplifying the analysis of consumer behavior and choice under the utility maximization framework.
|
