Question

The fact that an ounce of perfume is priced higher than an ounce of gasoline suggests...

The fact that an ounce of perfume is priced higher than an ounce of gasoline suggests that

a. the average utility derived from an ounce of perfume exceeds the average utility derived from an ounce of gasoline

b. the total utility derived from perfume exceeds the total utility derived from gasoline

c. the marginal utility of perfume exceeds the marginal utility of gasoline

d. gasoline is a necessity while perfume is a luxury
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Answer #1

Answer: A

EXPLAINATION: As Average utility is utility derived by per unit of consumption,Hence the average utility derived from an ounce of perfume exceeds the average utility derived from an ounce of gasoline.Where as utility derived from consuming extra unit of a commodity is called as Marginal utility.Thats why an ounce of perfume is priced higher than an ounce of gasoline.

As small bit of perfume will give the same smell, that it'll give on using any extra quantity whereas gasoline will given different average on different quantity. But total utility of gasoline is higher than perfume hence option B and C cqn not be considered correct.

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