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ECON 101 2Midtermreview

The herfindahlhirschman index the herfindahlhirschman

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Unformatted text preview: to life, far cheaper than diamonds, which are not essential?” is resolved by distinguishing between total utility and marginal utility. • We use so much water that the marginal utility from water consumed is small, but the total utility is large. • We buy few diamonds, so the marginal utility from diamonds is large, but the total utility is small. Value and Consumer Surplus The supply of water is perfectly elastic, so the quantity of water consumed is large and the consumer surplus from water is large. In contrast, the supply of diamonds in perfectly inelastic, so the price is high and the consumer surplus from diamonds is small. Behavioral Economics Behavioral economics studies the ways in which limits on the human brain’s ability to compute and implemen...
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