Can the trading value of gold exceed in equilibrium

Reference no: EM131103717

2.3. (advanced) Suppose the consumption of gold offers people a marginal utility that
diminishes as that person consumes more gold. Assume also that gold can be mined in unlimited amounts at the constant marginal costs, , units of the nongold consumption good.

a. Can the trading value of gold exceed in equilibrium? Explain. What is the effect on gold consumption and mining of an increased use of gold as money?

b. Suppose instead that the marginal mining cost increases with the amount mined. What is now the effect on gold consumption and mining of an increased use of gold as money?

Reference no: EM131103717

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