Question

2. (5 pts each) Suppose the DJ of a radio station has six concert tickets to split between four winners of their annual costume contest. The utility of each consecutive concert ticket for each person is given below (e.g., the first ticket allows the person to go to the concert and the second, third and fourth tickets could be given to their friends) The D.J is a utilitarian. Utility per ticket Mike Jon Trey Page lst 2nd 3rd 4th 555 333 700 500 85 85 500 85 60 75 85 80 50 65 70 75 a) Notice each person gets the most utility from the first ticket and each extra ticket yields a little less utility. What economic concept does this reflect? b) How would a utilitarian DJ distribute the six tickets? c) If instead, Jon received 800 units of utility from the first ticket, how would this change the optimal utilitarian distribution? 3. (5 pts each) In the table below, consider four societies with four people of differing ncones: PersonSociety A Society B Society CSociety D Person 1 Person 2 Person 3 Person 4 1,002 2,200 1,000 800 600 2,100 1,100 800 600 2,050 850 650 450 1,001 998 a) If you had an equal probability of being one of the persons (i.e., 25% chance). which society would you prefer to live in? Why? b) According to Rawl's Maximin principle, which society is worse off? Why? c) Suppose the poverty threshold is $1,000 and below, what are the poverty rates in each society?

Answer 1

Answer 2(a): The concept that each person gets the most utility from the first ticket and each extra ticket yields a little less utility, reflects the economic concept of ‘Diminishing marginal Utility’. According this economic concept, with other factors remaining constant, when we consume more and more of a product, the utility we derive from the product goes on decreasing with every extra unit of the product we consume.

Answer 2(b): A Utilitarian person believes that the maximum utilization of a resource is done when the maximum or greatest number of people are satisfied to the maximum with the consumption of the resource. Therefore, such a Utilitarian DJ would want a scenario where after he distributes the tickets, the tickets should have gone to the winners who got the maximum utility or satisfaction from the receipt of the tickets. Therefore, the DJ would want to distribute the tickets among those individuals who have the greatest desire or utility from the tickets. In the Utility chart given, we can see that Trey has the maximum amount of Utility for the First ticket. Therefore, the First ticket would go to Trey. Accordingly, as per the maximum utility desire, the Second Ticket would go to Mike, the Third and Fourth tickets will go to Page and Trey respectively, the fifth ticket will go to Jon , and the sixth ticket will go to Either of Mike , Jon or Page, their utilities being the same.

  Answer 2(c): If Jon would have received 800 units of utility from the first ticket, then the First ticket would go to Jon. Accordingly, as per the maximum utility desire, the Second Ticket would go to Trey, the Third ticket will go to Mike, The fourth and Fifth tickets would go to Page and Trey respectively and the sixth ticket will, as in the above case, go to Either of Mike , Jon or Page, their utilities being the same.