Income Distribution and Utility Would increasing the equality of i...

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Income Distribution and Utility
Would increasing the equality of income in the country necessarily increase the total utility of the country? Explain.
Hints:
(a) consider what different people use their money for: food, medical care on the one hand and luxuries on the other. Which gives more total utility? margina utility?
(b) Read the posted readings before you answer this discussion question

Utility and Consumer Behavior
In these questions, let's assume that all the people involved have the same income.
a) What type of people are more likely to eat resturaunt meals? TV dinners? Why?
b) Why do some people tip? Eat too much? Smoke?
c) Why do some people give charilty? Are you more likely to give charity to a down on her luck FIT graduate or a equally poor down on her luck Brooklyn College grad? Why?
Note that your answers (and follow-up discussion) MUST be based on the tools of economics covered in this module (meaning utility theory). Remember, everyone, rich and poor, experience positive and negative utility.

CONSUMER CHOICE
MATCHING EXERCISE

ECONOMICS TERMS
1. Total utility
2. Anchoring
3. The ‘law’ of diminishing marginal utility
4. Marginal analysis
5. Behavioral Economics
6. Consumer surplus
7. Giffen Good
8. Inferior good
9. Indifference curve
10. Market demand curve
11. The ‘law’ of demand
12. Network externality
13. Normal good
14. Diamonds versus water paradox
15. Sunk Cost

DEFINITIONS
a. Horizontal summation of individual demand curves.
b. Difference between total utility and total expenditures for a given quantity of some good.
c. The idea of relating an unknown value to some other known value, even if there is no connection between the two concepts
d. Observation that additional quantities of a given good generally have decreasing value for a consumer.
e. Maximum amount of money a consumer will pay for an additional unit of some good.
f. Typical story used to explain marginal utility.
g. A situation in which the usefulness of a product increases with the number of consumers who use it.
h. Quantity demanded increases when a consumer’s (real) income rises.
i. Quantity demanded decreases when a consumer’s (real) income rises.
j. Optimal combination of goods for a consumer.
k. Method for calculating choices that best promotes the decision maker’s objective.
l. Observation that a lower price generally increases the amount of a good that people in a market are willing to buy.
m. A cost that has already been paid and cannot be recovered
n. The study of situations in which people maker choices that do not appear to be economically rational.
o. Line showing all possible combinations of two goods a consumer finds equally desirable.
p. An upward sloping demand curve that might exist in the case of a very inferior good.

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These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.

a) People have preference over restaurant meals or dinners. It basically indicates that people with the same income allocate their income differently based on their preference over goods and services available to them even if the prices they face are the same.

b) Tips are still a cost to the customers so tipping should give them positive utility or avoid the negative utility from not tipping. The same goes for eating too much and smoking. Such behavior satisfies the temporary appetite or addition but may suffer from the long-term consequence and they are well aware....

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