QQuestionAnatomy and Physiology
QuestionAnatomy and Physiology
The Table below shows the utility a college student obtains from digital music albums and lattes. Albums are $7.00 each and lattes are $3.50. Assume the college students exhaust all of her income on these two goods.
| Units of goods | Marginal utility of digital albums | Marginal utility of albums per dollar spent | Marginal utility of lattes | Marginal utility of lattes per dollar spent |
| --- | --- | --- | --- | --- |
| First | 35 | 5 | 18 | 5.14 |
| Second | 26.25 | 3.75 | 14 | 4 |
| Third | 21 | 3 | 12 | 3.43 |
| Fourth | 17.5 | 2.5 | 10 | 2.86 |
Suppose the student receives a coffee shop gift card worth $7.00. What is the total utility she derives from the gift card?
| Number | |
| --- | --- |
| | utils |
What if she were given $7.00 in cash instead? What is her total utility in this case?
| Number | |
| --- | --- |
| | utils |
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Answer
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Step 1: First, let's calculate the total utility the student derives from spending the $7.00 gift card on lattes.
where $$MU\_{lattes, i}$$ is the marginal utility of the ith latte.
We do this by summing up the marginal utility of each latte she buys with the gift card.
Step 2: Plug in the marginal utilities from the table:
\text{Total utility from lattes} = 18 + 14 + 12 + 10 = 54
Final Answer
The total utility the student derives from the gift card is 54 utils, and the total utility she derives from $7.00 in cash is also 54 utils.
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