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Marginal utility

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Reference no: EM131022452 , Length: 1333 Words

1. (Law of Diminishing Marginal Utility) Some restaurants offer “all you can eat” 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 Katz’s “The Joy of Consumption: We Are What We Buy,” in the Federal Reserve Bank of Boston’s Regional Review at https://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. Medicare recipients pay a monthly premium for coverage, must meet an annual deductible, and have a copayment for doctor’s office visits. Few years ago, President George W. Bush introduced some coverage of prescription medications (prior to that, there was none). What impact would an increase in the monthly premium have on their consumer surplus or economic well being? What would be the impact of a reduction in copayments? (Answers may vary)

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

Reference no: EM131022452

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