Suppose the consumption of gold offers people a marginal utility that diminishes as that person consumes more
Question:
Suppose the consumption of gold offers people a marginal utility that diminishes as that person consumes more gold. Assume also that gold can be mined in unlimited amounts at the constant marginal costs, χ , units of the non gold consumption good.
a. Can the trading value of gold exceed χ in equilibrium? Explain. What is the effect on gold consumption and mining of an increased use of gold as money?
b. Suppose instead that the marginal mining cost increases with the amount mined. What is now the effect on gold consumption and mining of an increased use of gold as money?
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a We can think of as the opportunity costs of a unit of gold In other words stands for the ratio at which a person gives up units of the consumption g...View the full answer
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Related Book For 
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag
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