Plot the demand for caviar given the following information on quantity consumed and total utility; then explain why caviar sells for such a high price.
Quantity
(in ounces)
Total Utility
(in dollars)
1 50 2753 884 95 599?
What will be an ideal response?
To plot demand, find marginal utility for each ounce of caviar and plot quantity and MU (see Figure 5-20). At Q = 1, plot $50, at Q = 2, plot 25, . . . , at Q = 5, plot 4.
Caviar is a product for which there is a small supply, so the price can be as high as $50 an ounce (if S intersects D at one ounce). A larger supply would drop P to $25 (if S intersects D at Q = 2), etc.
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