Question

Which of the following is a key assumption of consumer choice theory?


Consumers buy goods as long as implicit costs are greater than explicit costs.

Option A,Consumers buy goods as long as implicit costs are greater than explicit costs.

a

Consumers maximize their utility.

Option B,Consumers maximize their utility.

b

As income rises, consumers buy more of all goods.

Option C,As income rises, consumers buy more of all goods.

c

Marginal utility is always increasing.

Option D,Marginal utility is always increasing.

d

As more inputs are used, consumers get less and less additional output.

Answer 1

Option B.

Consumer choice theory assumes consumers maximize their utility (subject to a budget constraint). The other statements are incorrect: implicit vs explicit costs applies to firms, income increases need not raise demand for all goods (inferior goods exist), and marginal utility is typically assumed to diminish, not always increase.