Kyoko and her friend go out for lunch to a nearby food court. Kyoko is trying to

Question

Kyoko and her friend go out for lunch to a nearby food court. Kyoko is trying to decide between ordering a burger or a sandwich. Which of the following factors will directly affect her decision? Check all that apply.

~The friend’s recommendations

~The relative prices of burgers and sandwiches

~The friend's budget

~The color of her friend’s car

~The expected benefits of the two options

Kyoko has always been fond of tuna sushi. However, after having tuna sushi every day for a week while on vacation, she grew tired of her favorite meal. How can economic theory help explain this change of heart?

~Because tuna sushi is very expensive, Kyoko feels guilty about spending so much money on this item.

~As Kyoko consumes more and more of her favorite meal, the marginal utility of additional servings of tuna sushi declines.

~Because of her limited income, Kyoko realizes that she will be happier if she substitutes California roll for tuna sushi.

~Kyoko realizes that tuna fish are an endangered species and decides that she should stop eating them.

Explanation / Answer

Her decision will be affected by her friends recommendations,the relative prices of burgers and sandwiches and the expected benefits of the two options. These are the likely cases that will affect Kyoto’s decision. Her friends budget and the color of friends car will not affect Kyoto’s decision.

This phenomenon can be explained by the phenomenon of diminishing marginal utility. As the quantity of tuna sushi increases, the marginal utility from each additional unit decreases.This holds true for almost all normal commodities.Thus As Kyoko consumes more and more of her favorite meal, the marginal utility of additional servings of tuna sushi declines.

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