economic tutor
Newspaper vending machines are designed so that once you have paid for one paper; you have access to all the papers in the machine and could take multiple papers at a time. However, other vending machines dispense only one item (the item you bought). You do not have access to all the goods (sodas, candy, snacks, etc.) at one time.
- Using the concept of marginal utility, explain why these vending machines differ?
Amy is shopping at a dollar store. She is currently buying 5 bracelets that cost $1 each and 4 sodas that cost $1 each. The table below indicates the marginal utility she obtains when she purchases this combination.
|
|
Quantity |
Price per Unit |
MU per unit |
|
Bracelets |
5 |
$1 |
30 |
|
Sodas |
4 |
$1 |
40 |
- A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is this consumer maximizing her utility?
- If not, should she consume more bracelets or more sodas? Explain.
Answer the following assuming that one more bracelet is purchased and one less soda is consumed:
- Recall the law of diminishing marginal utility. What happens to the Marginal Utility of bracelets and the Marginal Utility of soda?
- What happens to the Total Utility received?
- What happens to the total dollars spent?
———————
References:
