How many pairs would she wish to buy at $7 per pair? Her first pair brings her total utility to 15, so we know that her marginal utility for the 1st pair is 15. A 2nd pair of socks increases her total utility from 15 to 27, so her marginal utility for a 2nd pair is 12, and so on.

    Using this approach, it's easy to see that she would purchase 4 pairs of socks. The 4th pair gives her a marginal utility of 7 and the price is $7 so she buys that pair. The 1st-3rd pairs gave her more than 7 worth of marginal utility so she buys 4 pairs when the price is $7. (The fact is she's indifferent to buying the 4th pair but, we assume that consumers will purchase units where MU = P if possible.)

Wool Sock Utility
Quantity Total Utility
1 15
2 27
3 37
4 44
5 49
6 51

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved