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CB2 - Sept2016 - Qus 6

B

Bharti Singla

Senior Member
Consumer A has higher income than consumer B but they have identical preferences and pay same prices for goods.
It is mentioned that marginal utility is lower for A than B and total utility is higher for A than B.
I didn't understand how marginal utility is lower for A?

Can anyone please elaborate on this?
Thanks!
 
Hi Bharti

As they have identical preferences and pay the same prices, consumer A and consumer B will get the same goods, the same total utility and the same marginal utility if they have the same income. However consumer A has more income and so consumes more goods (we have assumed that all goods are normal here). Therefore consumer A has higher total utility. As marginal utility decreases as consumption increases, consumer A also has lower marginal utility.

Dave
 
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