1.Carl is a millionaire, meaning he has a net worth of a little more than $1,000
ID: 1132867 • Letter: 1
Question
1.Carl is a millionaire, meaning he has a net worth of a little more than $1,000,000, putting him in the top 5 percent of the U.S. population in terms of financial well-being. Daniel has a net worth of a little less than $17. With the principle of marginal utility in mind, Susie argues that Carl values each additional dollar less than Daniel values another dollar, because Carl already has so many dollars. In a nice paragraph, explain whether Susie is using the principle of marginal utility correctly or not.
Explanation / Answer
1.
Daniel has very low income and each additional dollars to Daniel, helps him to fulfill his basic needs. It means that the marginal utility of each additional dollar is very high for Daniel. Though, Carl is already very rich and has already fulfilled his needs. So, additional dollar to Carl, will bring little utility to Carl. Hence, Susie is right to say that each additional dollar has higher marginal utility for Daniel, in comparison to Carl. It is also complemented with the diminishing marginal utility principle that says that marginal utility decreases with an increase in consumption. Hence, the marginal utility of each dollar after $1 Million with Carl, will be very less than the marginal utility earned by the each dollar over $17 with Daniel.
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