Reservation price 4 Reservation price for the 1st unit (1) u(0,m)=u(1,mr1) G, is the dollar equivalent of the marginal utility of the 1st unit Reservation price for the 2nd unit (r2) u(1,m2)=u(2,m2r2) r2 is the dollar equivalent of the marginal utility of the 2nd unit Reservation price for the 3rd unit (r3) u(2,m-2r3)=u(2,m-3r)
Reservation Price ◆Reservation price for the 1st unit (r1 ) u(0, m) = u(1, m-r1 ) • r1 is the dollar equivalent of the marginal utility of the 1st unit. ◆Reservation price for the 2nd unit (r2 ) u(1, m-r2 ) = u(2, m-2r2 ) • r2 is the dollar equivalent of the marginal utility of the 2nd unit. ◆Reservation price for the 3rd unit (r3 ) u(2, m-2r3 ) = u(2, m-3r3 )
S Equivalent Utility gains Generally, if she already has n-1 gallons of gasoline then rn denotes the most she will pay for an nth gallon. is the dollar equivalent of the marginal utility of the nth gallon
◆Generally, if she already has n-1 gallons of gasoline then rn denotes the most she will pay for an nth gallon. • rn is the dollar equivalent of the marginal utility of the nth gallon. $ Equivalent Utility Gains
S Equivalent Utility gains ◆r1+…+ r will be the dollar equivalent of the total change to utility from consuming n gallons of gasoline at a price of $o
◆r1 + … + rn will be the dollar equivalent of the total change to utility from consuming n gallons of gasoline at a price of $0. $ Equivalent Utility Gains
S Equivalent Utility gains (s)Res Reservation Price Curve for gasoline Values 5 6 23456 Gasoline(gallons)
$ Equivalent Utility Gains Reservation Price Curve for Gasoline 0 2 4 6 8 10 Gasoline (gallons) ($) Res. Values 1 2 3 4 5 6 r1 r2 r3 r4 r5 r6
S Equivalent Utility gains What is the monetary value of our consumer's gain-to-trading in the gasoline market at a price of SpG?
◆What is the monetary value of our consumer’s gain-to-trading in the gasoline market at a price of $pG? $ Equivalent Utility Gains