If you are willing to pay 20 Rs and your friend is willing to pay 10 Rs for the same commodity, even when income in hand is same for you and your friend.
Why is your friend willing to pay less for the same commodity?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: marginal utility expected by your friend is worth 10 Rs and marginal utility expected by you is worth 20 Rs
- Marginal Utility (MU) refers to the additional satisfaction or benefit a person gets from consuming one more unit of a good.
- Willingness to pay for a commodity depends on the marginal utility derived from it.
- Since you are willing to pay ₹20, it means the marginal utility you derive from the commodity is worth ₹20.
- Since your friend is willing to pay only ₹10, it means the marginal utility they derive from the commodity is worth ₹10.
- Even though both of you have the same income, the difference in marginal utility perception leads to different willingness to pay.