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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 5, Problem 1TY
Textbook Problem
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Which gives you greater total utility: 14 gallons of water per day or 22 gallons per day? Why?

To determine

Whether 14 gallons of water will give more utility, or 22 gallons of water will give more utility.

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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