Use the graph below, which illustrates the marginal benefit of consumption, to answer the following questions.

a. You became a licensed electrician last year and have been enjoying a higher income than ever before. You choose to spend the majority of your income on amenities you couldn’t previously afford. Which point on the graph most likely represents your current level of consumption?

b. After many years of work as an electrician, a major economic downturn leaves you unemployed. You’re finding that you must pinch pennies just to afford basic necessities. You decide to return to school, so you can pursue a career in computer programming. Which point on the graph most likely represents this level of consumption?

c. Given the two previous events, which point on the graph would help you best smooth your consumption over the long run?

Transcribed Image Text:

Marginal benefit A B Consumption