The average U.S. home-Internet price increased from $40 a month in 2016 to $50 in 2020—a 25 percent increase. Over the same period, U.S. Internet users increased from 86 percent of the population in 2016 to 88 percent in 2019.
Mia’s Budget and Preferences
- Mia’s choices maximize her total utility.
- In 2016, as a new college student, Mia’s budget for Internet service and yoga was $60 a month.
- In 2019 when she graduated, her income increased, and she had $100 a month to spend on Internet service and yoga.
- The price of an hour of yoga was $10 in both years.
- Mia’s total utility from home Internet is 40 units and the figure shows her marginal utility from yoga.
Is Mia one of the 86 percent who were home-Internet users in 2016?
Total utility is maximized when the marginal utility per dollar is the same on all the items a consumer buys. But home Internet is an all-or-nothing choice, so it is not possible for Mia to make the marginal utility per dollar of Internet service equal the marginal utility per dollar of yoga.
To maximize total utility, Mia compares the total utility from the two possible choices.
We know her total utility from home Internet is 40 units, but we must calculate her total utility from yoga using the marginal utility numbers in Figure 1.
Table 1 shows Mia’s total utility from yoga.
To calculate the total utility from yoga, we sum the marginal utilities obtained from Figure 1. For example, the total utility and marginal utility from 1 hour is 20 units of utility. The marginal utility from a second hour is 18 units of utility, so the total utility from 2 hours of yoga is 38 units. The remaining total utility numbers are calculated in the same way.
Next, we make a table of Mia’s affordable alternatives in 2016.
Choice A, no Internet, leaves Mia with $60 to buy 6 yoga hours, so her total utility, all from yoga, is 90 units.
Choice B, spend $40 on Internet, leaves Mia with $20 to buy 2 yoga hours, so her total utility is 40 units from the Internet and 38 units from yoga, a total of 78 units.
Choice A has the larger total utility, so Mia chooses no home internet and 6 hours of yoga.
Mia is not one of the 86 percent who were home-Internet users in 2016.
Is Mia one of the 2 percent who became a home-Internet user in 2019?
Next, we make a table of Mia’s affordable alternatives in 2019.
Choice A, no Internet, leaves Mia with $100 to buy 10 yoga hours, so her total utility, all from yoga, is 110 units.
Choice B, spend $50 on Internet, leaves Mia with $50 to buy 5 yoga hours, so her total utility is 40 units from the Internet and 80 units from yoga, a total of 120 units.
Choice B now has the larger total utility, so Mia chooses home Internet and 5 hours of yoga.
Mia is one of the 2 percent who became a home-Internet user in 2019.
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