Example: Suppose Saron has 7 Birr to be spent on two goods: banana and bread. The unit price of banana is 1 Birr and the unit price of a loaf of bread is 4 Birr. The total utility she obtains from consumption of each good is given below.
Suppose Saron decides to spend 3 Birr on bananas, which means she can buy 3 bananas. The total utility she obtains from consuming 3 bananas is 30.
Alternatively, she can decide to spend 4 Birr on a loaf of bread. The total utility she obtains from consuming a loaf of bread is 20.
If Saron decides to spend all 7 Birr and buy both bananas and bread, she can buy 3 bananas and 1 loaf of bread. The total utility she obtains from this consumption bundle is 50 (30 from bananas + 20 from bread).
Based on these total utility values, Saron may choose to either spend all 7 Birr on bananas, all 7 Birr on bread, or a combination of both that maximizes her total utility.
To help you understand the situation, let's organize the information given:
- Saron has 7 Birr to be spent on two goods: bananas and bread.
- The unit price of a banana is 1 Birr.
- The unit price of a loaf of bread is 4 Birr.
- The total utility Saron obtains from the consumption of each good is provided.
Now, let's proceed step-by-step to answer any specific question you may have.