Saturday, February 22, 2020
Principles of Home Microeconomics Assignment Example | Topics and Well Written Essays - 500 words - 2
Principles of Home Microeconomics - Assignment Example Newspaper vending machines are designed so that once you have paid for one paper you have access to all the papers in the machine and could take multiple papers at a time. However, other vending machines dispense only one item (the item you bought). You do not have access to all the goods (sodas, candy, snacks, etc.) at one time. Using the concept of marginal utility, explain why these vending machines differ? Newspapers are mutually exclusive, once the first paper is picked; the marginal utility of picking the second paper is almost zero. Note that the news found in the second newspaper picked are the same as the first newspaper hence picking the second paper constitutes negligible utility gain hence no need for restriction. However, customers will always have an incentive to pick different goods from the other vending machines since every second good picked has a utility gain, hence the restriction. For instance, a combination of soda and snacks yield to a higher utility than soda alone. Contrary to the normal supply curve, labor supply curve is not purely positively sloped but bends backward changing to negative slope at higher wages. This is due to contradicting forces of substation effect and income effects as wage rises. Workers substitute working hours for leisure. Wage rise increases the incentive to work hence positive substitution effect. On the other hand, increase in wage implies that workers can achieve their target income by working fewer hours hence the negative income effect. At low wages, substitution effect is more than income affects hence the total effect s positive. However, as wages rise, income effect increases and at a certain point the total effect becomes zero, then negative, hence the backward turn.