Question

Consider an accident in which an individual loses a leg. Assume that it lowers the individual’s utility at each level of income but increases his or her marginal utility (at each level of income), thereby affecting the individual's overall welfare. How would this scenario likely influence the concept of:

A) Diminishing marginal utility
B) Income elasticity of demand
C) Consumer surplus
D) Price discrimination

Answer 1

An individual's accident in which they lose a leg influences economic concepts like diminishing marginal utility, income elasticity of demand, consumer surplus, and price discrimination based on altered utility levels and marginal utility changes.

Step-by-step explanation:

In the scenario where an individual loses a leg and associates a decrease in utility at each level of income but an increase in marginal utility, several economic concepts are influenced:

• A) Diminishing marginal utility could be altered since the individual's marginal utility increases with each unit of income, which would affect the typical pattern where additional units of consumption usually yield less utility.
• B) Income elasticity of demand may increase, as the individual might require more goods or services to maintain their level of utility, making their demand more sensitive to changes in income.
• C) Consumer surplus could be affected as the individual's willingness to pay for additional units might be higher due to the increased marginal utility, potentially increasing consumer surplus.
• D) Price discrimination strategies might be less effective on this individual, as their increased marginal utility could change their purchasing behavior and willingness to pay.

These concepts are rooted in assumptions of consumer choice and behavior without needing to measure utility in specific units.