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Available income in the way that maximizes his or her

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available income in the way that maximizes his or her total utility, given the prices of goods and services A consumer’s total utility is maximized by spending all the available income and equalizing the marginal utility per dollar for all goods Marginal utility per dollar is the marginal utility from a good obtained by spending one more dollar on that good The basic idea behind the utility maximizing rule is to move dollars from good A to good B if doing so increases the utility from good A by more than it decreases the utility from good B If the marginal utility per dollar from good A exceeds the marginal utility per dollar from Good B, then buy more of good A and buy less of good B Conclusion: If marginal gain > marginal loss, then take action. What are predictions of marginal utility theory? See book for example What is the paradox of value? Price of water is low and price of diamond is high, but water is essential to life while diamonds are mostly just for decoration Paradox is resolved by distinguishing between total utility and marginal utility Total utility that we get form water is enormous, but as we consume more of something,
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