Consider two goods: pillows and blankets. If a hotel
increases the utility from pillows to blankets, then it
increases the utility of pillows more than it decreases
the utility of blankets. This means it moves dollars from
pillows to blankets. How can you maximize the total
utility using the marginal utility per dollar theory?
Q18: In
studying the consumption of very poor families in China,
Robert Jensen and Nolan Miller found that in both Hunan
and Gansu, “Giffen behavior is most likely to be found
among a range of households that are poor (but not too
poor or too rich).”
a. What do Jensen and Miller mean by “Giffen behavior”?
b. Why would the poorest of the poor be less likely than
people with slightly higher incomes to exhibit this
behavior?
c. Why must a good make up a very large portion of consumers’
budgets to be a Giffen good?