Goldconsumption and mining of increased use of gold as money

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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, X (or chi), units of the non gold consumption good.

a) Can the trading value of gold exceed X 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: EM131169576

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