ECON 2302 - Ch. 6 Consumer Choice & Demand (LC & HW)

George is a broke college student who consumes only coffee and pizza. Coffee is $2 per cup, and pizza is $5 per pizza. George's weekly budget constraint is shown. On the graph, show how his budget constraint would change if George gets an additional $10 per week from his grandmother.

(10)($2) = 20 (4)($5) = 20 Original Budget: $20 per week 20 + 10 = 30 30/2 = 15 30/5 = 6 Set values to maximum amount able to purchase with the budget of $30: X - Value (Pizza (number/week)) = 6 Y - Value (Coffee (cups/week)) = 15

A consumer is consuming at a point on her budget line. Her income is $40 a week, and she purchases hamburgers and grilled cheese sandwiches. Both goods cost $2 each, and she consumes five hamburgers. How many grilled cheese sandwiches does she consume?

(P(1) x Q(1)) + (P(2) x Q(2)) = Income 40 - (2 x 5) = 30 30/2 = 15 15 grilled cheese sandwiches

Suppose that Joe consumes cupcakes and DVDs. The price of cupcakes is $5 per unit and the price of DVDs is $10 per unit. The table shows Joe's utility from the consumption of each good; each row represents a possible consumption bundle. Currently, Joe is consuming 18 cupcakes and 9 DVDs. Calculate the marginal utility per dollar of going from eight to nine DVDs.

0.90 utils/$

Cookie Monster loves cookies! The table shows how his utility varies with cookie consumption, but the table is missing some numbers (possibly because Cookie Monster also loves to eat many other things). Cookie Monster's marginal utility from the fourth cookie is:

140 units (530 - 390) = 140

The graph shows how Daisy's utility changes as she consumes candy. Based on the preferences shown in the graph, arrange the pieces of candy from highest marginal utility to lowest marginal utility.

1st piece 2nd piece 3rd piece 4th piece 5th piece 6th piece

Cookie Monster loves cookies! The table shows how his utility varies with cookie consumption, but the table is missing some numbers (possibly because Cookie Monster also loves to eat many other things). Cookie number _____ tastes the best to Cookie Monster.

2

Suppose that Joe consumes cupcakes and DVDs. The price of cupcakes is $5 per unit and the price of DVDs is $10 per unit. The table shows Joe's utility from the consumption of each good; each row represents a possible consumption bundle. Currently, Joe is consuming 18 cupcakes and 9 DVDs. What is the total utility at the optimal consumption bundle?

281.30 utils

Kimiko is planning a party to celebrate her birthday. She has decided to serve sushi and yakitori meat skewers. Each serving of sushi is $8 and each yakitori is $2. Kimiko has $240 to spend on the party, and her budget line is shown below. Her friend Barry thinks there will not be enough food, so he gives Kimiko $80 more to spend on the party (she now has $320). Show Kimiko's new budget line in the graph below and answer the question.

320/8 = 40 320/2 = 160 Set values to maximum amount able to purchase with the budget of $320: X - Value (Q of Yakitori): 160 Y - Value (Q of Sushi): 40

Suppose that Sam allocates his income between milk and cereal. Milk costs $2.50/gallon and cereal costs $5.00/box. Sam has $50/week to spend on these two goods. The table shows Sam's preference for consumption bundles as well as how Sam's marginal utility (𝑀𝑈M⁢U) for milk and cereal, respectively, varies as consumption varies. Given the information provided here, how should Sam allocate his income between milk and cereal? As this is his optimal consumption bundle, Sam should purchase

4 gallons of milk and 8 boxes of cereal.

Maurice is a barbecue aficionado and loves hosting people at his ranch with his upright drum smoker. As a good host, he wants to create the perfect consumption bundle for his five guests but needs to operate under a reasonable hosting budget. Assume that ribs and brisket both cost $3$3 a pound. A table of the various consumption bundles and their associated utility representing Maurice's budget constraint is shown. If the goal is to maximize utility, which option will Maurice choose?

4 lbs of ribs; 5 lbs of brisket

A consumer is consuming a point on her budget line. Her income is $50 a week, and she purchases burgers and grilled cheese sandwiches. Burgers cost $2, and she consumes 15 of them. She consumes $10 grilled cheese sandwiches. How much do grilled cheese sandwiches cost?

50 - (2 x 15) = $20 $20/10 = 2 $2

Cookie Monster loves cookies! The table shows how his utility varies with cookie consumption, but the table is missing some numbers (possibly because Cookie Monster also loves to eat many other things). What is Cookie Monster's total utility when he eats 6 cookies?

705 units (630 + 75) = 705

Poppy likes to eat hot peppers. A coworker brought Poppy a jar of extremely hot ghost peppers. The accompanying graph illustrates Poppy's total utility for these peppers. Use the graph to answer the question and assume that Poppy seeks to maximize her utility. Poppy asks if she should consume seven peppers. What would your advice be?

Consume fewer than seven peppers and you will be better off.

T/F: Judi has $50 to spend. If movies cost $8 and books cost $5, Judi can purchase five movies and three books.

False

T/F: The budget line shows possible production bundles.

False

______________________ is any technique used to steer individuals into selecting one option over another.

Framing bias

The following table lists marginal utility and price per data for number of products. Which of the following products would a consumer choose to maximize his or her utility price per dollar?

Fries MUpd = MU/P MUpd = 50/2 MUpd = 25 (highest)

Megan receives a work promotion and makes $300 more a week. What happens to Megan's budget line after her promotion?

It shift's outward

The following table illustrates the utility received for each minute Janet likes to speak on the phone. What is the marginal utility for minute five?

MU = TU(5) - TU(4) MU = 36 - 28 MU = 8

Determine whether each expression describes total utility, marginal utility, or neither. The change in utility from consuming one additional unit of a good:

Marginal Utility

Determine whether each expression describes total utility, marginal utility, or neither. What usually decreases as consumption increases:

Marginal Utility

Mauricio has a circus act that involves monkeys on unicycles. Mauricio has a fixed amount to spend on unicycles and monkeys. The graph shows Mauricio's initial budget constraint. The price per unicycle is $120 and per monkey is $90. Using the graph, show what happens to Mauricio's budget line when the price of unicycles increases to $180. What is Mauricio's budget for monkeys and unicycles?

Mauricio's budget: $720 (120)(6) = 720 720/180 = 4 unicyclres (90)(8) = 720

Kimiko is planning a party to celebrate her birthday. She has decided to serve sushi and yakitori meat skewers. Each serving of sushi is $8 and each yakitori is $2. Kimiko has $240 to spend on the party, and her budget line is shown below. Her friend Barry thinks there will not be enough food, so he gives Kimiko $80 more to spend on the party (she now has $320). Show Kimiko's new budget line in the graph below and answer the question. Which good will Kimiko buy more of?

Only Kimiko knows; the querstion does not provide enough information.

Ariel loves to eat baklava so much that she finds it difficult to stop. However, it gets easier for her to stop eating as each baklava is consumed. The first baklava gives her a satisfaction level of 16 utils. The second baklava gives her half as much satisfaction as the first one. The third baklava gives her half as much satisfaction as the second, and so on. Place points A, B, C and D on the diagrams to depict the total and marginal utilities of baklava consumption.

Point A: (1.0, 16) Point B: (2.0, 8) Point C: (3.0, 4) Point D: (4.0, 2)

Assume that this law hold for Quincy with ice cream and pretzels. Quincy decides to eat less ice cream and more pretzels. As a result,

Quincy's marginal utility of ice cream increases, and his marginal utility of pretzels decreases.

Suppose Carlos has a budget of $100 to spend on soft drinks and bottled water. Soft drinks cost $2 per liter. Bottled water costs $1 per liter. Draw Carlos's budget line in the graph.

Set values to maximum amount able to purchase with the budget of $100: X - Value (Soft Drinks) = 50 liters Y - Value (Bottled Water) = 100 liters

Assume Maisey works at Burger Frog, a top‑notch fast‑food restaurant where Maisey earns $11.0011.00 per hour. Maisey took the day off from Burger Frog today to go see the Cubs play the Brewers live at the local stadium. Maisey paid $50.0050.00 for a non-refundable ticket, but after the fifth inning, the Cubs are losing 14-0 to the Brewers. Although Maisey is no longer enjoying the game, she does not really have any other ideas on how to spend the afternoon. Then, she gets a text from Dora, one of her coworkers, asking if Maisey would be willing to come in and work the rest of Dora's shift for her. Maisey calculates that if she left the game immediately, she could get to Burger Frog in time to pick up three paid hours. Should Maisey leave or stay at the game?

She should leave and go work the extra hours at Burger Frog.

Determine whether each expression describes total utility, marginal utility, or neither. The amount of satisfaction that a customer gets form consuming a bundle of goods and services:

Total Utility

Determine whether each expression describes total utility, marginal utility, or neither. What economists assume rational consumers seek to maximize:

Total Utility

Determine whether each expression describes total utility, marginal utility, or neither. What usually increases as consumption increases:

Total Utility

T/F: A budget line slopes downward because, to buy more of Good 1, a consumer has to buy less of Good 2.

True

T/F: Along a particular budget line, the price faced by the consumer and the consumer's income are held constant.

True

T/F: The budget line depicts the combinations of two goods a consumer can buy given her income and the current prices.

True

Suppose that Joe consumes cupcakes and DVDs. The price of cupcakes is $5 per unit and the price of DVDs is $10 per unit. The table shows Joe's utility from the consumption of each good; each row represents a possible consumption bundle. Currently, Joe is consuming 18 cupcakes and 9 DVDs. To increase total utility without increasing spending, should Joe change the amount of consumption of either good?

Yes, Joe should choose fewer cupcakes and more DVDs.

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. 12 tacos, 1 bowl of noodles

affordable and exhaust the budget ($1)(12) = $12 ($4)(1) = $4 $12 + $4 = $16

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. 16 tacos, 0 bowls of noodles

affordable and exhaust the budget ($1)(16) = $16 ($4)(0) = 0

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. 3 tacos, 3 bowls of noodles:

affordable with money left over ($1)(3) = $3 ($4)(3) = $12 $12 + $3 = $15

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. 6 tacos, 2 bowls of noodles

affordable with money left over ($1)(6) = $6 ($4)(2) = $8 $8 + $6 = $14

Classify each scenario as a representation of the sunk cost fallacy, framing bias, overconfidence, or altruism. Tricia was pleased that she was able to donate $100 to her favoriter charity this year:

alturism

Dee helps a lost tourist find the locals' favorite restaurant. This is an example of:

alturism

The law of diminishing marginal utility says that

as a person consumers more and more of a certain good, the addition to total satisfaction decreases

The sunk cost _______________ undone because people ___________________.

cannot be; cannot recover this cost.

Behavioral economics is the field of economics that

explores economic decision making using findings from experimental psychology.

Classify each scenario as a representation of the sunk cost fallacy, framing bias, overconfidence, or altruism. Sam lowered the price of coffee at his grocery store from $10.00 to $9.99 per can. Consumers now purchase significantly more cans of coffee at his store:

framing bias

Consumers will maximize their utility by spending each dollar of their limited budgets on the goods and services that yield the:

highest marginal unity per dollar

Determine whether each expression describes total utility, marginal utility, or neither. The possible combinations of two goods that a person can consume, given his or her income:

neither

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. dinner for two at Chez Brian, the most expensive restaurant in town

not affordable

Like so many other poor, hungry college students, Mac has to budget his lunch money carefully. He can spend $16.00 a week on meals. His two favorite places to eat are Muchos Tacos, where he gets breakfast tacos for $1.00, and Oodles of Noodles, where he can eat for $4.00. Match each combination of meals to the appropriate category based on Mac's budget constraint. 4 tacos, 4 bowls of noodles

not affordable ($1)(4) = $4 ($4)(4) = $16 $16 + $4 = $20

Classify each scenario as a representation of the sunk cost fallacy, framing bias, overconfidence, or altruism. After negotiating for days, Sonia realized that she was not worth as much to her potential employer as she had previously believed:

overconfidence

Reality-based singing competitions often air auditions of poor signers belting off key. This behavior is an example of:

overconfidence

Constance decides she really wants to buy a couch today rather than save her money and buy one next year. She decides to finance the couch at 27% interests. This is an example of:

overvaluing the present relative to the future

Mark decides he would rather consumer more today and save less for retirement. He reduces his retirement contributions from 10% to 2% of his salary. This is an example of:

overvaluing the present relative to the future

Your ____________ determine(s) how much pleasure you can expect to receive from various possible options for consuming.

preferences

Consider a hypothetical consumer named Hayden who is shopping for bread and brie. The graph with bread and brie on the axes presents the utility‑maximizing combinations of bread and brie that Hayden chooses when the price of bread is $1.00$⁢1.00 per loaf and the price of brie is $4.00$⁢4.00 and $6.00$⁢6.00 per wheel, respectively. The other graph shows Hayden's demand curve for brie. The two points and associated values in the graph for bread and brie combinations correspond to points A and B in the graph of the demand curve for brie. What are the specific prices and quantities of brie associated with points A and B on Hayden's demand curve?

price of brie at point A: $6 quantity demanded at point A: 7.49 price of brie at point B: $4 quantity demanded at point B: 23.84

What major factor of economic theory do behavioral economists question?

rationality

Classify each scenario as a representation of the sunk cost fallacy, framing bias, overconfidence, or altruism. Zach continues skiing in spite of blizzard conditions because he has already paid for a nonrefundable all-day pass.

sunk cost fallacy

Suppose a consumer is trying to decide between buying a small pizza and a burger. The burger costs $1 more than the pizza, which has a price of $2. However, the consumer decides that the burger gives him twice as much utility as the pizza. Using the utility-maximizing rule, what should he buy?

the burger

Poppy likes to eat hot peppers. A coworker brought Poppy a jar of extremely hot ghost peppers. The accompanying graph illustrates Poppy's total utility for these peppers. Use the graph to answer the question and assume that Poppy seeks to maximize her utility. Marginal utility becomes negative with the consumption of which pepper?

the consumption of the sixth pepper

Suppose a consumer is trying to decide between buying another small pizza and buying another burger. The burger cost $3 more than the pizza, which has a price of $2. The consumer decides that the burger gives him exactly twice as many utils as the pizza. Using the utils-maximizing rule, what should he buy? (utility max =>(MUa/Pa) = (MUb/Pb).

the pizza (Whatever the number of utils the consumer recieves from the burger, is twice as many from the pizza, but the burger cost 150% more. Based on marginal utility per dollar, the pizza is the better choice)

As organic vegetables increase in popularity, Marcy finds herself eating more and more organic kale. Use the table to answer the two questions. What is the total utility that Marcy obtains from consuming three units of organic kale? What is Marcy's marginal utility for the fifth unit of organic kale?

total utility : 24 (18 + 6) = 24 marginal utility: 2 (30 - 28) = 2

Suppose that a consumer has $10 to spend. A candy bar costs $2, and a bag of peanuts cost $1.50. Which of the following combinations lies ON the budget line?

two candy bars and four bags of peanuts ($2)(2) = $4 of candy bars ($1.50)(4) = $6 of peanuts $6 + $4 = $10 $10 = $10 budget = lines on the budget line

Suppose that a consumer has $10 to spend. A candy bar cost $2, and a bag of peanuts cost $1.50. Which of the following combinations lies INSIDE the budget line?

two candy bars, and one bag of peanuts (2)($2) = $4 in candy bars $1.50 in peanuts $5.50 < $10 = inside the budget line

Suppose that a consumer has $20 to spend. A soda costs $2, and a sandwich costs $4. Which combination of sodas and sandwich would be attainable and exhaust the consumer's budget?

two sodas and four sandwiches (2)($2) = $4 for soda (4)($4) = $16 for sandwiches $16 + $4 = $20 $20 = $20 (budget) = attainable but exhaust's budget