Microeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280618
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Question
Chapter 5, Problem 1TY
To determine
Whether 14 gallons of water will give more utility, or 22 gallons of water will give more utility.
Expert Solution & Answer
Explanation of Solution
There are three types of commodities, namelygoods, bads and neutrals.
"Goods" are those commodities that provide more utility when more is consumed.
"Bads" are those commodities that provide less utility with each additional unit consumed.
"Neutrals" are those commodities that provide the same utility irrespective of the number of units consumed.
If water is a good, then 14 gallons of water will provide less utility than 22 gallons of water.
If water is a bad, then 14 gallons of water will provide more utility than 22 gallons of water, because more gallons of water consumed will decrease the utility obtained.
If water is a neutral, then the utility obtained from 14 gallons of water will be equal to 22 gallons of water.
Economics Concept Introduction
Total utility refers to the level of satisfaction that a consumer receives from the consumption of a good or service.
The total utility initially increases at an increasing rate first, then at a diminishing rate, and then it finally starts to fall after reaching its maximum point.
A consumer would be willing to purchase more of a good if the total utility is increasing.
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