2 88313 225 6 3 121302 181 4 4 150267 117 2 5 1751750 0_____________________________________________________________________________________Predictions Based on Marginal Utility Theory This information allows for economic prediction. This is relevant because income and prices are not stagnant. What happens to House As consumption of books and beverages when their prices and House As income changes?Determining the effect of a change in price on consumption involves three steps:1 Determine the combinations that can be purchased at new prices.2 Calculate the new marginal utilities per dollar spent.3 Determine the maximum utility resulting in consumer equilibrium.This process demonstrates that if, for example, the price of books falls but beverages remain constant in pricing, House A will most likely increase consumption of books and indulge in fewer beverages. If house A does not adjust its consumer habits it losses consumer equilibrium. A rise in income, however, brings about an increase in consumer goods. Should House A increase its books and beverages budget to $42.00 consumer equilibrium is reached when seven books and seven beverages are purchased monthly. Marginal utility theory is used by economists to answer a wide range of questions. An example of this can be found in its application in determining the fluctuations in popularity between wooden and aluminum baseball bats. Another example is the ability of the theory to answer questions about patterns of consumer spending. But as well as explaining consumption choices, it can be used to explain all household choices. The allocation of time as well as capital can be decided using marginal utility theory. And its often been stated that time equates to money.In ConclusionWhat does all this mean to the modern consumer? There becomes a point for consumers when all resources, intangible capital such as time as well as tangible do...
