Measure of Utility

Topics: Chocolate, Vanilla, Price Pages: 1 (329 words) Published: February 26, 2013
In terms of the consumer theory set forth in this chapter, can you explain the meaning of the following statements? a. "I think you get more for your money from Nike than from Reebok." b. "I wanted to buy a Boxster rather than a Malibu, but it just wasn't worth it." c. "I'd like to go to Mexico over spring break, but I just can't afford it," said Don. Jill asked, "Don't you have enough money in your account?" Don replied, "Yeah, but I can't afford to go." d. "I'll have to flip a coin to decide whether to buy chocolate chip or vanilla fudge ice cream."

a. The amount of utility you derive from Nike is higher than the amount of utility you derive from Reebok. That utility might be due to a better more lasting shoe, design, or from such a things as the utility attached to wearing a brand that has created value around itself (ie. if it is cool to wear Nikes).

b. Upon examination I determined that the difference in prices and quality as well as my opportunity costs for other products for that last price difference, make it better for me to buy a Malibu. For example, say the extra $2000 have too high an opportunity costs that overweight your benefit from having the boxer over the Malibu.

c. This is because consumers' choice is multi-time and so that today you might have to have the money to go away for a week, but the utility derived from that money must be calculated in relation to future periods where you could spend the money. You might have all that money but if in the next period you won't be able to eat, naturally the utility derived from eating in the second period is higher than the utility from going to Mexico.

d. You like both ice cream flavors the same, same utility,.... the only thing left is to flip a coin.
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