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. n 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. ◆Sor1+…….+rn- pgn will be the dollar equivalent of the total change to utility from consuming n gallons of gasoline at a price of spG each
◆r1 + … + rn will be the dollar equivalent of the total change to utility from consuming n gallons of gasoline at a price of $0. ◆So r1 + … + rn - pGn will be the dollar equivalent of the total change to utility from consuming n gallons of gasoline at a price of $pG each. $ 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
S Equivalent Utility gains The dollar equivalent net utility gain for the 1st gallon is S( - pG) and is $(r2-p) for the 2nd gallon, c and so on so the dollar value of the gain-to-trade is $(r1-po)+$(r2-po)+ for as long as rn -pG>0
◆The dollar equivalent net utility gain for the 1st gallon is $(r1 - pG) ◆and is $(r2 - pG) for the 2nd gallon, ◆and so on, so the dollar value of the gain-to-trade is $(r1 - pG) + $(r2 - pG) + … for as long as rn - pG > 0. $ Equivalent Utility Gains