S Equivalent Utility gains Now that she has one kilogram, use r2 to denote the most she would pay for a 2nd kilogram -this is her reservation price for the 2nd kilogram +r2 is the dollar equivalent of the marginal utility of the 2nd gallon
◆Now that she has one kilogram, use r2 to denote the most she would pay for a 2nd kilogram -- this is her reservation price for the 2nd kilogram. ◆r2 is the dollar equivalent of the marginal utility of the 2nd gallon. $ Equivalent Utility Gains
S Equivalent Utility gains Generally, if she already has n-1 kilograms of rice then rn denotes the most she will pay for an nth kilogram +rn is the dollar equivalent of the marginal utility of the nth kilogram
◆Generally, if she already has n-1 kilograms of rice then rn denotes the most she will pay for an nth kilogram. ◆rn is the dollar equivalent of the marginal utility of the nth kilogram. $ Equivalent Utility Gains
S Equivalent Utility gains ◆r1+∴+ r will therefore be the dollar equivalent of the total change to utility from acquiring n kilograms of rice at a price of $o ◆Sor1+∴+ pgn will be the dollar equivalent of the total change to utility from acquiring n kilograms of rice at a price of $p each
◆r1 + … + rn will therefore be the dollar equivalent of the total change to utility from acquiring n kilograms of rice at a price of $0. ◆So r1 + … + rn - pGn will be the dollar equivalent of the total change to utility from acquiring n kilograms of rice at a price of $pG each. $ Equivalent Utility Gains
S Equivalent Utility gains ◆ A plot of r1r2…,『n… against n is a reservation-price curve. This is not quite the same as the consumer's demand curve for rice
◆A plot of r1 , r2 , … , rn , … against n is a reservation-price curve. This is not quite the same as the consumer’s demand curve for rice. $ Equivalent Utility Gains
S E quivalent Utility g Jains S)Res Reservation Price Curve for rice Values 5 6 6 Rice( kilograms)
$ Equivalent Utility Gains Reservation Price Curve for Rice 0 2 4 6 8 10 Rice (kilograms) ($) Res. Values 1 2 3 4 5 6 r1 r2 r3 r4 r5 r6