ECON 325

In Class Exercise One - Subjective Value and Demand

1.   1.  Bob:  “Selling imaginary goods is unethical.”

Betty:  “No it isn’t, if a consumer is satisfied with what they are buying then what is the problem?”

Bob:  “But what if you have credible evidence that the causal connection isn’t real?  Doesn’t that make selling the good unethical?”

Betty:  “As long as there is no harm done to the consumer, it is not unethical?”

Comment:

2.   2.  Given that most individuals, most of the time, would rank water or food as having the highest level of satisfaction they could give to a good; whereas a painting by Van Gough would be ranked as having a lower level of satisfaction – using the marginal utility (or value) analysis we discussed in class, explain why the price of a unit of food would typically be much lower than the price of a Van Gough painting?  Be sure to talk about ends.

3.   3.  Under what conditions or circumstances would the price of a unit of food most likely be higher than the price of a Van Gough?  Use the marginal utility (value) analysis to explain.

4.   4.  Discuss the opportunity cost of consuming one good instead of another with respect to ends.

5.   5.  Relate your discussion of diminishing marginal utility and ends to a standard demand curve.  Use water as the good and “derive” the demand curve.