If you go to a bar tonight and have three beers before going home to study economics, will you likely receive some consumer’s surplus? Explain why or why not.

What will be an ideal response?

The law of diminishing marginal utility indicates that as more and more of a commodity is consumed, the marginal utility declines. The optimal purchase rule states that a rational consumer will keep buying a commodity until the MU falls until it is equal to the price of the good. These two rules together suggest that you will buy beers until the MU of the last one is equal to the price. Hence the MU of the first two beers is higher than the price, and the difference between the MU and the price of each beer is the consumer’s surplus.