Question

Which statement is the most accurate? (LO3) a) Your utility schedule for chewing gum can never change, since it is based on your demand schedule for chewing gum. b) Interpersonal utility comparisons cannot be made unless people buy that good at the same price. c) Everyone gets the same utility from taking a biology course. d) A good or service does not have any inherent utility, so we cannot say that a day at a beauty spa is worth \(\$ 250\).

Short answer

The most accurate statement is option d: "A good or service does not have any inherent utility, so we cannot say that a day at a beauty spa is worth $250." This is because utility is subjective and personal, and the value of a good or service varies between individuals based on their preferences and the utility they derive from the experience.

Step-by-step solution

(Understanding utility and demand schedule)

(Utility is a measure of the satisfaction or happiness that a consumer derives from consuming a good or service. The demand schedule is a table that shows the quantity demanded of a good or service at different prices, keeping other factors constant. It's important to note that both utility and demand can change depending on numerous factors, such as income, preferences, and market conditions.) #Step 2: Interpersonal utility comparisons#

(Interpersonal utility comparisons)

(Interpersonal utility comparison is the attempt to compare the satisfaction or happiness levels of different individuals or consumers while consuming a good or service. It is a challenging task mainly because people have different preferences, income levels, and taste.) #Step 3: Subjectivity of utility#

(Subjectivity of utility)

(Utility is a subjective concept, which means that each individual derives different levels of satisfaction or happiness from consuming a good or service. For example, some people might find great utility from attending a concert, while others might not enjoy that experience. Therefore, utility is personal and can vary between individuals.) #Step 4: Evaluating each statement#

(Evaluating each statement)

a) This statement is inaccurate because utility and demand schedules can change due to various factors such as consumer preferences, income, and market conditions. b) Interpersonal utility comparisons can be complicated, but comparing at the same price is not a requirement for making comparisons. It is more about comparing the satisfaction or happiness levels of different individuals while consuming a good or service. c) This statement is not accurate because utility is subjective. Every individual has different preferences and interests, so the utility derived by each person taking a biology course can be very different. d) This statement is accurate. Utility is subjective and personal; thus, a good or service does not have any inherent utility. The value of a day at a beauty spa may be worth $250 for some but might not be for others, depending on their preferences and the utility they derive from the experience. #Step 5: Conclusion#

(Conclusion)

(Based on the evaluation of each statement, the most accurate statement is option d: "A good or service does not have any inherent utility, so we cannot say that a day at a beauty spa is worth $250.")

Key concepts

Utility and Demand Schedule

When we talk about utility, we're referring to the satisfaction or pleasure that someone gets from consuming a product or service. Imagine you're craving chocolate, and when you eat it, the enjoyment you feel is the utility you've gained. Now, a demand schedule is like a shopping list that shows how many units of chocolate you're willing to buy at various prices.

But here's the twist – your love for chocolate can change. Maybe you go on a health kick, or your budget tightens. As a result, your demand schedule for chocolate is going to look different. It's not set in stone. It fluctuates with your tastes, how much cash you have to splash, and even what else is going on in the market. In other words, utility highly influences your demand. If the satisfaction you get from a good changes, so does your willingness to buy it.

Interpersonal Utility Comparisons

Have you ever tried to argue with a friend about who loves pizza more? Well, you've stumbled into the realm of interpersonal utility comparisons. This is all about trying to measure and compare how much satisfaction different people get from the same slice of pizza, for example. It's super tricky because what's a cheesy delight to you might just be an okay snack to someone else.

Why It's Complicated

• Preferences: Everyone has their unique likes and dislikes. Your friend might be more of a burger fan.
• Income and Budget: Maybe your friend can't splurge on pizza as often.
• Subjectivity: Satisfaction is personal. It's hard to measure and compare because what makes you happy might not affect someone else in the same way.

So you see, even if you and your friend buy pizza at the same price, it doesn't necessarily mean you can compare how much enjoyment you each get out of eating it.

Subjectivity of Utility

One person's trash is another's treasure, right? That's essentially the subjectivity of utility in a nutshell. The satisfaction you get from something can vary wildly compared to someone else. Like, you might be over the moon about getting front-row tickets to a concert, while your friend, not so much. This is because everyone values experiences and items differently based on their personal tastes, emotions, and past experiences.

What it boils down to is this: utility isn't one-size-fits-all. It's shaped by internal factors unique to each individual, making it tough to put a universal value on how much utility a good or service can provide. In economics, we recognize this and try to understand that these personal levels of happiness can't be exactly quantified or compared between people.

Consumer Satisfaction

When we flip the coin to the consumer's side, consumer satisfaction becomes the main show. Think of it as the happy meter that goes up when you consume goods or services that you like. It's a key concept because it's what drives you to decide whether to buy a product or not. If a new phone comes out and it hits all the right notes for you, your satisfaction skyrockets, and you're more likely to buy it.

Businesses are super interested in this because, in the end, they want to make things that satisfy you so much that you'll keep coming back for more. But remember, your satisfaction levels can change – if you discover something better or your preferences evolve, what once brought you a lot of joy might not have the same effect anymore.