Illustrate what is now the effect on gold consumption

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Reference no: EM1351498

Suppose the consumption of gold o¤ers 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 cost, , units of the non-gold consumption good.

a. Can the trading value of gold exceed in equilibrium? Explain. What is the e¤ect 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. Illustrate what is now the e¤ect on gold consumption and mining of an increased use of gold as money?

Reference no: EM1351498

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