Hershey Kiss Consumption: An Experiment in Marginal Utility and the Law of Demand As you conduct this experiment OBSERVE the chosen test subject but do.

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Hershey Kiss Consumption: An Experiment in Marginal Utility and the Law of Demand As you conduct this experiment OBSERVE the chosen test subject but do NOT make any verbal comments as the experiment proceeds. Have your test subject consume a Hershey Kiss. After each Hershey Kiss is consumed ask the test subject to rank the marginal utility/additional satisfaction they received from that Hershey Kiss.

Number of Kisses Consumed Marginal Utility/ Additional Satisfaction Total Utility

1. What happened to the marginal utility/additional satisfaction as more kisses were consumed? Marginal Utility (MU) decreased

2. When did marginal utility begin to decline (Note: This is referred to as “diminishing marginal utility”)? Answers vary

3. Does the experiment confirm the “Principle of Diminishing Marginal Utility” which states that the more you consume of any product the less satisfied you are with each additional item consumed? Yes, at least usually

4. What happened to total utility as the experiment progressed? Why? Total utility increased. As each kiss was consumed you were still getting SOME utility/ satisfaction so more was being added to total utility with every additional kiss consumed.

5. Write one sentence that explains the relationship between the Principle of Diminishing Marginal Utility and consumers’ willingness to pay high or low prices. Hint: Think about the Law of Demand (As P  Q d  ; As P  Q d  ). As more is consumed the MU  so for the consumer to be willing to consume/ buy more of the product the price must . Examples: BOGO sales, Costco/ buying in bulk, price of one can of soda vs. per can price when you buy a case of soda

6. Use the Principle of Diminishing Marginal Utility to explain the following: a. Why most people buy a variety of products or why they don’t buy multiples of the same items. To keep the marginal utility (MU) high! MU falls as you buy more so it’s not worth it. MU must be  marginal cost (MC) for the item to be worth it.

6b. Why most people buy only one house or one refrigerator. The 1st house and the 1 st refrigerator have high MU’s so MU  MC. For the 2 nd house/refrigerator the MU drops a lot so then the MU  MC and it’s not worth it to buy the 2nd one. When someone does have a 2 nd refrigerator what to they use it for? When someone has a 2 nd house what to they use it for?

6c. Why water is cheaper than gold. MU of water starts off very high but drops very rapidly so MC must drop too so we will buy more. MU of gold starts off very high and stays high so the MC will stay high too. MU 0 # consumed MU 0 # consumed

6d. Why we spend more time shopping for a house or a car than we do a 32oz. soda. A house or car has a very high MU so we are willing to spend a lot of time (high MC!). A 32 oz. soda has a low MU so we are only willing to spend a little time (high MC!) search for the best deal.