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Unformatted text preview: that good. 3. The Rational Spending Rule: Spending should be allocated across goods so that the marginal utility per dollar spent is the same for each good. You and Bill Gates have two things in common you both saw the movie Inception twice in the theater, and you both have one Starbucks coffee each morning. Does this mean that you and Bill Gates have the same marginal utility for these? No. It varies from person to person. 4. When the price of a good goes up, substitutes for that good become relatively more attractive, causing some consumers to purchase less of that good. Is having dinner at Spankys a substitute for a plane ticket home? Explain. No. They dont really replace each other and are not similar products. However they both factor in to your budget so they are related in a way (Substitution effect) purchasing one thing means purchasing less of another....
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This note was uploaded on 02/13/2012 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.
- Fall '07