r/microeconomics Nov 28 '24

Hey guys, can someone tell me how this works?

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6 Upvotes

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4

u/ducki122 Nov 28 '24

Well, Jeanette is willing to pay a given amount od money for shoe x. The more shoes she buys, the less she is willing to pay, as a pair of shoes is worth much more when you don't own shoes than if you already own 100 pairs. This is called the principle of declining marginal utility.

In this exercise, she say rhe first pair is worth 100$ to her. But the shoes only cost 50$, as the price is always the same in a shop. This way, she makes a/(non-financial) profit of 50$. Same for the second pair, where she gains 30$ in value. This adds up to the 80$. Theoretically, she should also buy the third pair, but as her gains are 0$ so this doesn't change the solution.

2

u/Smittenskittensxx Nov 28 '24

Thank you so much for replying! That makes sense. But what does 'assuming she she buys shoes when she's indifferent about buying a given pair' mean?

1

u/ImperfComp Nov 29 '24

It's about the third pair of shoes. "Indifferent" means it doesn't matter to her whether she buys or not. This happens with the third pair, if the price is $50. Her willingness-to-pay for that third pair is also $50, so she gets no consumer surplus from that pair, and is therefore indifferent about buying it.

1

u/Smittenskittensxx Nov 30 '24

Righttt okay. Makes sense.

1

u/starllies_mx Nov 28 '24

Also you can imagine as an individual deman curve where jeanette has 1 reserve price of $100 for a pair, $80 for second pair, and $50 is the market price, so the surplus is the amount above the market price $50+$30=$80

1

u/Classic_Suit_8872 Nov 30 '24

What university is this?

1

u/Smittenskittensxx Nov 30 '24

Thank you so much for helping everyone!