Suppose the Initial distribution of $4,500 worth of Income is such that Amy rece
ID: 2428559 • Letter: S
Question
Suppose the Initial distribution of $4,500 worth of Income is such that Amy recelves $1,250 and Bryce recelves $3.250. If Income is redistributed so that both Amy and Bryce split the $4,500 equally, determine by how much the total utility for each of them changes. The following graphs show how this affects thelr marglnal utilities. Amy's Marginal Utility of Income Bryce's Marginal Utility of Income 6,000 6,000 5,000 5,000 1,000 1,000 125 $2,280 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 a. Amy's total utlity would decrea by 1,250,000. 2750,000. 0 1,750,000. 2,250,000. b. Bryce's total utility would [increaseby 1.275,000. 1.175.000 01,750,000. o 500,000. c. Overall, thelr combined utlity would Incresseby 750,000 O 1,500,000. o 500,000. 1000,000.Explanation / Answer
a. Increase, 1750000
Increase in income by $1000 led to a decrease in MU by 3250-2250 = 1000 and Tu decreases as total utility and marginal utility are inversely related.
Total change = Area of rectangle + area of triangle = 1000 x 1250 + 1/2 x1000 x 1000 = 1250000 + 500000 = 1750000
b. Decrease, 2750000
Decrease in income by $1000 led to a increase in MU by 3250-2250 = 1000 and TU decreases
Total change = Area of rectangle + area of triangle = 1000 x 2250 + 1/2 x1000 x 1000 = 2250000 + 500000 = 2750000
c. increase, 1000000
Overall change in TU = Change in Amy's TU + Change in Bruce's TU = 2750000 - 1750000 = 1000,000
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