describing how the rational spending rule can help maximize utility in your own life.

• Describe two goods, services, or activities thatyou currently enjoy but your marginal utility per dollar (or per unit of time) for the two goods isnotequal.
• Be specific in describing these two goods, services, or activities.
• Use the rational spending rule to describe how you can re-arrange your spending (or time) in order to maximize your utility.
• You can simply state that you should spend more money (or time) on one thing and less money (or time) on the other.
• Describe what will happento your marginal utility for each good (or activity) after you reallocate your spending (or time).

Example:I enjoy both chicken and fish as protein wit my dinner. If I eat chicken a lot, my marginal utility for chicken will fall. This is because of the law of diminishing marginal utility. As my marginal utility for chicken falls, so does my marginal utility per dollar. Eventually as I go a while without eating fish, my marginal utility for fish rises, and so does my marginal utility per dollar for fish. Now once my marginal utility per dollar for fish rises above my marginal utility per dollar for chicken, I will switch and start eating fish over chicken. Of course, because of the law of diminishing marginal utility, as I eat more fish my marginal utility will start to fall, and as I eat less chicken my marginal utility will start to rise. Eventually my marginal utility per dollar for chicken will rise above my marginal utility per dollar for fish, and at that point I will switch back to eating chicken for dinner again.

I also like lobster a lot more than I like chicken or fish. However, lobster is a lot more expensive than chicken or fish. Although my marginal utility for lobster is almost always larger, I almost never eat it. Because lobster is so expensive my marginal utility per dollar for lobster is really low. I usually eat chicken or fish because they cost less. Therefore, my marginal utility per dollar is a lot higher for chicken and fish than it is for lobster. This is why I usually only eat lobster on special occasions or if I'm on the east coast where the prices are lower.

Alternate Example:I enjoy both fishing and golfing. If I can get out, regardless if I golf or fish, I usually only have 2 hours of free time to go have fun. This means my cost for both activities is the same. So to apply the rational spending rule I should simply do whichever activity would give me the highest marginal utility (whichever I would enjoy the most that day). Last year I played a lot of golf and did not fish very much. This is because my marginal utility for golf was higher than my marginal utility for fishing. The more I golfed my marginal utility for golf fell while my marginal utility for fishing increased the longer I went without fishing. Eventually I got tired of golfing all the time and decided to go fishing. I had so much fun that first time out I could not wait to get back. Because I had not gone for so long my marginal utility for fishing had become really large and surpassed my marginal utility for golf. I ended up fishing a ton and not golfing at all for months. Because I have been fishing so much lately my marginal utility for fishing has fallen to almost zero. Similarly, since I have not been golfing at all recently, my marginal utility for golfing has been rising and rising. This means it is time to dust off the golf clubs and start golfing again.