Pretend that you have just been surprised with a genuine e-mail that says you ha

Question

Pretend that you have just been surprised with a genuine e-mail that says you have just been selected by your favorite pizza delivery company that every day for the next month you will receive your favorite pizza for lunch and another of that same favorite pizza for dinner, delivered to your home and ready to eat. Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning. What about your excitement on the 10th day? What about your excitement on the 30th day? Now, pretend that your favorite national brand gasoline company informs you that you have won as much as you want free gasoline, as much as you want, from any of their gas stations, anywhere in the country every day for a year. Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning. What about your excitement on the 10th day? What about your excitement on the 30th day? Again, considering the concept of utility, what makes these two scenarios different?

Explanation / Answer

The pizza scenario:

Pizza is food which is important to satisfy hunger needs of man. But there are many varieties of food which can satisfy the hunger. Pizza is just one of them. Man essentially likes variety in food. He eats food not just to satisfy the basic physiological hunger need but also to satisfy the taste buds. So the excitement of getting pizza for lunch and dinner will be short lived. As man eats each additional slice of pizza he will realize that he is not wanting to consume any more of the same. And also consuming too much pizza can be rough on stomach and cause health issues. So the marginal utility of pizza decreases very fast. And by day 30 there is no satisfaction and therefore negative MU. See table(hypothetical) in the end just to give an idea about this scenario.

The Gasoline scenario:

Gasoline prices are to be considered when talking about the MU for gasoline. Man is worried about the price of gasoline since it has become an essential commodity for daily transport and mobility which eats into the pocket of expenditure very badly. If gasoline prices are high and are going to increase in future then getting a discount offer would definitely increase total utility and also decrease marginal utility at a slower rate. But if gasoline prices are low and it is going to decrease in future as well then marginal utility will decrease just as in the pizza case. Let us remember that the scenario is period specific. Therefore this explanation holds good.

See the table below for self understanding

Pizza offer(If price increases or decreases) Day Marginal Utility Total Utility 1 10 10 10 2 12 30 -4 8 If price decreases Gasoline offer Day Marginal Utility Total Utility 1 10 10 10 2 12 30 -4 8 If price increases Gasoline offer Day Marginal Utility Total Utility 1 10 10 10 8 18 30 6 24

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.