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Chapter 19: Problem 14

If a 10-dollar bill was found lying on the sidewalk, (LO1) a) if a rich person found it, she would get more utility from what she could buy with it than a poor person b) if a poor person found it, she would get more utility from what she could buy with it than a rich person c) there is no way to determine whether a rich person or a poor person who found the money would get more utility from what she could buy with it

Short Answer

Expert verified
In conclusion, a poor person would likely derive more utility from finding a 10-dollar bill on the sidewalk compared to a rich person. This is because each dollar holds more relative significance to a poor person, and the utility gained from the purchases made with the money would be more substantial. This showcases the concept of diminishing marginal utility of money, as the additional satisfaction gained from each additional dollar decreases as a person's income increases.

Step by step solution

01

Introduce the concept of utility

Utility is an economic term that represents the satisfaction a person receives from consuming a good or service. It is a subjective measure and can vary between individuals based on their preferences, tastes, and levels of income.
02

Examine the case of a rich person finding the 10-dollar bill

If a rich person found the 10-dollar bill, they would likely perceive its value as relatively low compared to their total wealth. Although they can buy something with it, the utility they gain from that purchase may be negligible compared to the utility they derive from their other consumption.
03

Examine the case of a poor person finding the 10-dollar bill

If a poor person found the 10-dollar bill, its perceived value would be higher compared to their total wealth. Since they have fewer resources, each dollar holds more relative significance. In this case, the poor person could use the money to buy essential items, and the utility gained from those purchases would be considerable.
04

Conclude the comparison of utility between the two scenarios

In comparing the utility gained from finding the 10-dollar bill between a rich person and a poor person, we can conclude that a poor person would likely derive more utility from it. This is due to the diminishing marginal utility of money, which states that as a person's income increases, the additional satisfaction they get from each additional dollar decreases.

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Most popular questions from this chapter

If we know Olivia King's demand schedule, we can find (LO1,3) a) her marginal utility, but not her total utility b) her total utility, but not her marginal utility c) both her total utility and her marginal utility d) neither her total utility nor her marginal utility

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Price gouging will (LO6) a) raise consumer surplus b) lower consumer surplus c) have no effect on consumer surplus If food were free in your school cafeteria, you would keep eating until ( \(\mathrm{OO})\) a) your total utility was zero b) your marginal utility was zero c) your consumer surplus was zero d) you were sick
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