When a bottle of water costs $38, it’s hard not to agree that bottled water is a fool’s drink. The drink of choice among image-conscious status seekers and high-end tee-totalers in L.A. is Bling H2O. It’s not the water that accounts for the cost of the $38, but the “limited edition” bottle decked out in Swarovski crystals.
a. Assuming that the price of a bottle of Bling H2O is $38 in all the major U.S. cities, what might its popularity in Los Angeles reveal about consumers’ incomes or preferences in Los Angeles relative to other U.S. cities?
b. Why might the marginal utility from a bottle of Bling H2O decrease more rapidly than the marginal utility from ordinary bottled water?