Assume you are in a store looking at a shirt you want. You expect to buy the shi

Question

Assume you are in a store looking at a shirt you want. You expect to buy the shirt until you look at the price, then you decide the shirt is not a good buy. How can your decision be viewed in economic terms?

a. The shirt's marginal utility divided by price was too low compared to other goods.
b. The shirt has zero marginal utility for you.
The shirt's marginal utility divided by price was too high compared to other goods.
c. The opportunity cost of the shirt was too low.
d. None of the above answers is correct.

Explanation / Answer

A is the correct answer. The opportunity cost of buying the shirt is anything else you could do with the money. You utility maximize when the ratio of the marginal utility to the price is equal for all goods. This means that you should buy when MU/P for a good is greater than MU/P for other goods and not buy when MU/P for a good is less than MU/P for other goods.

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