Candy has a $100 gift card to a department store and needs a new watch. She walks into the store and is overwhelmed by the sheer number of watches and price points, from $30 to $3,000. She loves expensive luxury watches but has no other money to spend. She also loves cosmetics and would spend any money left over from the gift card on makeup. Explain how she can use the concept of marginal utility to analyze the options available to her and maximize her satisfaction.
What will be an ideal response?
Consumers maximize their satisfaction by getting the greatest utility possible per dollar. Because the watches will all deliver varying levels of satisfaction, she will have to estimate how much satisfaction she will get from a given watch and divide that by the price. She could estimate her satisfaction by analyzing how many features each watch has in common with a luxury watch. If the satisfaction per dollar she would receive from any of the $100 watches is less than the satisfaction per dollar she would receive from a cheaper option, say the $30 watch, plus whatever makeup she would buy, she should buy the cheaper watch and spend the rest of the money on makeup.
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