ECON 1050 Chapter 8: Economics-1 (1) (dragged) 4

8 views1 pages

salmoneagle674

17 Sep 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

The paradox of value why is water, which is essential to life, far cheaper than diamonds, which are not essential? is resolved by distinguishing between total utility and marginal utility. We use so much water that the marginal utility from water consumed is small, but the total utility is large. We buy few diamonds, so the marginal utility from diamonds is large, but the total utility is small. The paradox is resolved by distinguishing between total utility and marginal utility. For water, the price is low, total utility is large, and marginal utility is small. For diamonds, the price is high, total utility is small, and marginal utility is high. But marginal utility per dollar is the same for water and diamonds. The supply of water is perfectly elastic, so the quantity of water consumed is large and the consumer surplus from water is large.

Related Questions

5) Childcare workers often get paid fairly low wages, yet it is said that they have the most important job in the world." This paradox can be resolved by A) noting that marginal utility does not diminish for childcare. B) distinguishing between price and value. C) noting that childcare yields no utility since it is a service. D) distinguishing between marginal utility and total utility. E) none of the above.

20) Childcare workers often get paid fairly low wages, yet it is said that they have "the most importa job in the world." This paradox can be resolved by A) distinguishing between price and value. B) distinguishing between marginal utility and total utility. C) noting that marginal utility does not diminish for childcare. D) noting that childcare yields no utility since it is a service. E) none of the above.

1. (Law of Diminishing Marginal Utility) Some restaurants offer âall you can eatâ meals. How is this practice related to diminishing marginal utility? What restrictions must the restaurant impose on the customer in order to make a profit? (Answers may vary)

2. (Marginal Utility) Is it possible for marginal utility to be negative while total utility is positive? If yes, under what circumstances is it possible?

3. (Role of Time in Demand) In many amusement parks, you pay an admission fee to the park but you do not need to pay for individual rides. How do people choose which rides to go on? (Answers may vary)

4. What is the diamonds-water paradox, and how is it explained? Use the same reasoning to explain why bottled water costs so much more than tap water.

5. Please read Jane Katzâs âThe Joy of Consumption: We Are What We Buy,â in the Federal Reserve Bank of BostonâsRegional Review at http://www.bos.frb.org/economic/nerr/rr1997/winter/katz97_1.htm and briefly discuss/summarize the evidence that Katz cites about how the rising value of time has affected consumer spending patterns.

6. Suppose that marginal utility of Good X = 100, the price of X is $10 per unit, and the price of Y is $5. Assuming that the consumer is in equilibrium and is consuming both X and Y, what must the marginal utility of Y be? (Hint: Please apply the formula: MUx/Px = MUy/Py)

7. What is consumer surplus? What happens to consumer surplus as price level falls?

8. Do you think any good which does not exhibit the law of diminishing marginal utility?

ECON 1050 Chapter 8: Economics-1 (1) (dragged) 4

Document Summary

Get access

Related Documents

ECON 1050 Chapter Notes - Chapter 8: Bounded Rationality, Neuroeconomics, Marginal Utility

ECON 1050 Study Guide - Quiz Guide: Marginal Utility, Average Cost, Marginal Cost

ECON 1050 Chapter Notes - Chapter 8: Behavioral Economics, Bounded Rationality, Economic Surplus

Related Questions