econ1001_endofchapter05

econ1001_endofchapter05 - Chapter 5 Demand: the benefit...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 5 Demand: the benefit side of the market
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Problem #1, Chapter 5 In which type of restaurant do you expect the service to be more prompt and courteous: an expensive gourmet restaurant or an inexpensive diner? Explain.
Background image of page 2
Solution to Problem #1 (1) Refer to chapter 1 We discussed that the amount you are willing to spend on a certain product reveals the value or the benefit of the product If you are rational and are willing to pay $800 for an admission ticket to watch a concert, the value or benefit of the concert must be at least $800 In the question, two options are given: an expensive gourmet restaurant and an inexpensive diner Both the restaurant and the diner are actually businesses selling food and services
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Solution to Problem #1 (2) In of terms of Economics goods, is “food” a normal good or an inferior good? Food is both a necessity and a normal good. If your income increases, you will probably increase your consumption in food or increase your consumption in expensive food like premium beef and seafood In of terms of Economics goods, is “service” a normal good or an inferior good? Service is also a normal good. If your income increases, you will probably spend more on service or spend more on expensive service like hiring a in-house maid to do all the housework or hiring an professional accountant to look over your wealth management
Background image of page 4
Solution to Problem #1 (3) Thus, “Willingness to pay for FOOD”, and that for SERVICE are increasing functions with income Expensive gourmet restaurants like those in ifc or in luxurious hotels target on diners who earn higher incomes Inexpensive diners like those on campus target on diners who earn lower incomes
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Solution to Problem #1 (4) To attract diners earning higher incomes and charge them a higher price, expensive gourmet restaurants provide high quality of food as well as high quality of service To attract diners earning lower incomes and charge them a lower price, inexpensive diners provide low quality of food as well as low quality of service (self-serve on campus)
Background image of page 6
Chapter 5 Problem 2 2) You are having lunch at an all-you-can-eat buffet. If you are rational, what should be your marginal utility from the last morsel of food you swallow? Rational decision makers make their decisions/choices that maximizes their total benefit. (maximizes their total satisfaction s) Therefore, we can always predict people’s behavior as the consequences of choices that maximize total utility. Thus, Marginal benefit means Marginal utility
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Marginal Utility: the additional utility (satisfaction) gained from consuming an additional unit of good. So, what is the marginal benefit (marginal utility) for this person to have an additional morsel of food in the buffet? In the all-you-can-eat buffet, the marginal cost of an
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 45

econ1001_endofchapter05 - Chapter 5 Demand: the benefit...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online