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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Water is necessary for life. Is the marginal benefit of a glass of water large or small?

To determine

The marginal benefit.

Explanation

A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost. It is known that water is an essential element for survival. But people are willing to pay much more for other unnecessary luxury items than for a glass of water. The reason is that a person's willingness to pay for a good is based on the marginal benefit that an extra unit of the good would yield.

The marginal benefit, in turn, depends on how many units a person already has. Water is essential, but the marginal benefit of an extra glass is very less because in some places it is abundant...

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