Question

Sal is at the County Fair with $100 dollars to spend on either rides (R) or junk food (F). The ticket price for a ride, PR, is $5 and the price of junk food, PF, is $10. At these prices, Sal plans to go on 8 rides and spend the rest of the money on food. Then, Sal notices that the ticket booth offers a special pass, for a price $50, which allows an unlimited amount of rides per day. Should Sal choose to purchase the unlimited pass or buy 8 tickets for $5 each? Sal wants to maximize his enjoyment at the Fair. Explain your answer using a consumer choice graph.

Answer 1

Total amount Sal is willing to spend= $100

Price for a ride= $5

Price of junk food= $10

Sal plans to go for 8 rides and spend the rest on food

This means $5x 8 rides= $40 and remaining $60 for food

But, however, she finds a special pass for $50 for unlimited rides. This means she has to spend total of $50 for rides and $50 for food.

According to the law of diminishing marginal utility for every additional unit of consumption there is a loss in the satisfaction derived. Keeping this in mind let us observe the graph below.

In the above graph we can see that she does not get the minimum required satisfaction due to the law of diminishing marginal utility. Point A on the slope X is ahead of point B on slope Y indicating higher utility. Any curve to the left of A will have more affordability but lesser utility or enjoyment. Any curve to the right of A will have more utility but less affordability. Hence Sal can stick to her original decision of 8 rides and food for the rest of the amount