Question

Erik thinks that his fellow student Ben has too much money.

"If Tom would give me 50 Euros every month, it would be much more efficient", he argues,

"because Tom hardly notices and for me it would be a big improvement".

What can you say to this from an economic point of view?

(Please write rafly 70 words)

Answer 1

Considering that Ben and Tom are the names of the same person.

So, from the question, we get the information that Tom is rich and Erik is comparatively less rich. So Erik’s statement that if Tom gives him 50 Euros every month, it would be much more efficient because Tom hardly notices but for Erik, it would be a big improvement is correct. This is because, we have learnt that higher the amount of a good, a person has, the marginal utility from that good keeps decreasing. So, for Tom, a decrease in 50 Euros will not affect his utility much, but for Erik, who is not rich, an income of extra 50 Euros would increase his utility because the marginal utility from money would be greater for Erik than for Tom.

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