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Does my utility increase if I pay less?

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You attend an auction and in your mind agree to pay $100 for an item, but you are able to purchase at $50.

1. Discuss the comparison of the utility of the $100 versus the utility of the good and how a voluntary exchange results in a win/win situation to both parties.

2. Has the utility of the item increased because of the lower price and why?

3. As a result of the lower price, has your total utility increased and why?

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Solution Summary

This solution explains whether the utility I derive from an item increases if I buy it cheaply, and whether my total utility increases as a result.

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1. Discuss the comparison of the utility of the $100 versus the utility of the good and how a voluntary exchange results in a win/win situation to both parties.

I am willing to give up $100 to obtain the item, so the item's utility ...

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