ECON: Chapter 7

Sierrah spends her monthly entertainment budget on books and movies. Sierrah's initial utility-maximizing combination of books and movies was five movies and two books a month. Assume the price of books fell. Sierrah's new utility-maximizing combination of books and movies is now five movies and four books.

A normal good

Total utility is maximized when marginal utility becomes

Zero

Maria has a $250 gift certificate at a spa that she can use on massages or manicures. A massage costs $50, and a manicure costs $25. a. Let x=massages. Let y=manicures. The equation of Maria's budget constraint is: b. Suppose Maria decides to split her gift certificate with a friend and transfers half of the value of her gift certificate to her friend. The equation for her new budget constraint is: c. After giving away half of her gift certificate, suppose the price of massages increases by 50 percent before Maria can use her gift certificate. The equation for her new budget constraint is:

250=50x+25y 125=50x+25y 125=75x+25y

Evie has a gift pass for unlimited roller-coaster rides on her birthday. Information about Evie's utility is given in the table below: Rides: 1, 2, 3, 4 Total Utility: 10,25,35,30 How many rides will Evie choose to take?

3 rides

Maheet has $40 to spend at an amusement park. The roller coaster costs $10 per ride. Information about Maheet's utility is given in the table below. Roller Coaster rides; 1, 2, ,3 ,4 Total Utility: 20, 35, 45, 40 How many rides will Maheet choose to take

3 rides (choose where total utility is higher)

You love going to the movies. For your birthday, your friend offers to take you to a triple feature without popcorn or a double feature with two bags of popcorn. The table below shows your utility for movies and popcorn. # of movies: 1, 2, 3 Total Utility: 10, 15, 18 # of popcorn bags: 1, 2 3 Total Utility: 5, 5, 4 Which option? -Triple feature with no popcorn -Double feature with popcorn

Double feature with popcorn: Even though you get no additional utility from the second bag of popcorn, the first bag of popcorn gives you 5 units of utility, which is more than the marginal utility of the third movie (3 units). Double gives you 20 units of utility, triple gives you 18 units.

Simon spends $300 a month on voice lessons and dance lessons. He just learned that starting next month his favorite dance instructor is moving out of town and the monthly rent for his apartment is increasing. How will each of these events affect Simon's budget constraint for voice and dance lessons? -His budget constraint will shift out since he can no longer take dance lessons -He will have to reduce his number of voice/dance lessons -His budget constraint will shift in -His favorite instructor moving away will not change his budget constraint

He will have to reduce his number of voice/dance lessons, his budget constraint will shift in, his favorite instructor moving away will not change his budget constraint.

Quantity of Ice Cream: 1,2,3,4,5 Total utility: 12, 20, 26, 30 32 Marginal Utility?

Marginal utility = Change in total utility/ Change in quantity Marginal Utility: 12,8,6,4,2 (20-12=8/1=8) (26-20=6/1=6) etc..

Julian buys plants and flowers every month. Both are normal goods. When the price of flowers fell, Julian purchased fewer plants. Which of the following statements is true for Julian regarding the income effect and the substitution effect? -No conclusions can be made regarding the relative strength of these two effects -Substitution effect was stronger -Income effect was stronger -The income effect and substitution effect were equally strong

Substitution effect was stronger (normal goods)

Dan likes to spend his allowance on two things: candy and toys. Which of the following are the constraints that determine the possible consumption bundles of toys and candy available to Dan? -The price of toys -The marginal utility he receives from each additional candy -The amount of his allowance -The marginal utility he receives from each new toy -The price of candy -The number of cavities of his teeth

The price of toys The amount of his allowance The price of candy

Suppose a wedge of cheese is $10 and a loaf of bread is $5.

The opportunity cost of purchasing a wedge of cheese is 2 loaves bread. If income decreases by 20 percent, the opportunity cost of purchasing a wedge of cheese is not 2 loaves of bread. (The opportunity cost of purchasing a wedge of cheese is two loaves of bread because the $10 you spend on a wedge of cheese could have purchased two loaves of bread. If your income decreases by 20 percent, your budget constraint shifts in. You are now able to buy less bread and cheese. However, the opportunity cost of purchasing a wedge of cheese has not changed. As long as the price of cheese is still $10 and bread is still $5, the opportunity cost of purchasing a wedge of cheese is still two loaves of bread. A change in your income does not change the relative tradeoff between the goods you consume. This tradeoff is determined by the prices of the goods.)

Altruism? Reciprocity? a. Giving a few canned goods to the local food bank for its annual food drive b. helping someone move her couch after she helped you study for an upcoming exam c. the biological relationship between cleaner fish and large predators in the ocean, in which cleaner fish keep

a. Altruism b. Reciprocity c. Reciprocity

Your gym offers two classes at the same time: weightlifting and yoga. Both classes are included in your membership and have space available. Your friend tells you he wants to work on his strength and take the weightlifting class, but you always see him in yoga class.

Yoga class gives your friend the most utility as his preference is revealed by his actions

Petra has $480 to spend on DVDs and books. A book costs $24 and a DVD costs $15. a. Write an equation for the budget constraint. Let x=books. Let y=DVDs. b. Use your equation to determine how many books Petra can buy if she buys 8 DVDs.

a) 480=24x+15y b) Petra can buy 15 books (plug 8 in for y)

Which of the followings goods is the utility you get from consuming them likely to be affected by the opinions of others? MP3s, A new car, running shoes, a new laptop for class.

all of them. Utility we get from most goods are affected by opinions of others. We get more utility from satisfaction of others.