PS1
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
wants to consume more ankle socks and fewer bandanas.
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of $5.00 per movie and to purchase 5 CDs per month at a cost of $10.00 per CD. Your marginal utility from the fifth movie is 30 and your marginal utility from the fifth CD is 52. Are you maximizing utility? What could you do to increase utility?
1. You are not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. 2. You could increase utility by consuming more movies and fewer CDs .
Joe has $16.00 to spend on Twinkies and Ho-Hos. Twinkies have a price of $1.00 per pack and Ho-Hos have a price of $2.00 per pack. Use the information in the graphs to the right to determine the number of Twinkies packs and the number of Ho-Hos packs Joe should buy to maximize his utility Joe should buy ____ Twinkies packs and _____Ho-Hos packs.
4 Twinkies & 6 Ho-hos (MU of Ho-hos is twice the amount of the MU of Twinkies at that amount)
The following table shows Madison's utility from consuming popcorn and Coke. Suppose that Madison has income of $28.00, the price of popcorn is $4.00, and the price of Coke is $3.00. If Madison wants to maximize her utility, how much popcorn and Coke should she buy?
4 boxes of popcorn & 4 cans of Coke
Carol consumes tacos and coke. The marginal utility each yields is illustrated in the table below. If the price of tacos is $3.00 per taco and the price of coke is $4.00 pr coke and if Carol has $24.00 to spend, what is her utility-maximizing quantity of tacos and coke? To answer this question, first fill in the marginal utility per dollar spent on tacos, MUt/Pt, and coke MUc/Pc, in the table below. Carol maximizes utility by consuming ___ tacos and ____ cokes.
4 tacos, 3 cokes
If a consumer receives 20 utils from consuming two candy bars, and 25 utils from consuming three candy bars, the marginal utility of the third candy bar is
5 utils
If a consumer receives 22 utils from consuming the first can of soda, 20 utils from consuming the second, and 15 from the tird, the total utility of consuming the three units is
57 utils
Characterize utility maximization. When consumers maximize utility, A. they consume each good up to the point where the marginal utility per dollar spent is the same for each good. B. the slope of the indifference curve equals the slope of the budget constraint at the point of optimization. C. the marginal rate of substitution equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis at the point of optimization. D. both a and b. E. all of the above.
E
If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P) and what should Callum do?
MU/P has decreased and Callum should buy less of this good.
The Table below shows the relationship between the number of movies seen per monthand the total utility received Fill in marginal utility in the table below: Movies Total Utility 0 0 1 24 2 40 3 48 4 52 5 54 Is this showing the law of diminishing marginal utiltiy?
Movies Total Utility Marginal Utility 0 0 - 1 24 24 2 40 16 3 48 8 4 52 4 5 54 2 This illustrates the law of diminshing marginal utility
What is the definition of marginal utility?
The change in utility from consuming an additional unit of a good or service
Mary is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is Mary maximizing utility?
This cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda.
In the following budget constraint- indifference curve graph, Nikki has $210 to spend on blouses and skirts. a. What is the price of a blouse? What is the price of a skirt? $ b. Is Nikki making the optimum choice if she buys 4 blouses and 2 skirts?
a. (210/5) = $42 (210/10) =$21 b. No, the indifference curve going through this point is not tangent to Nikki's budget constraint.
A consumer's utility −maximizing combination of goods is given by the bundle that corresponds to the point on
an indifference curve that is tangent to the budget constraint.
Carolyn spends her income on pipular magazines and music CDs. If the price of a CD is four times the price of a magazine, then if Carolyn is maximizing her utility, she buys
both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.
The law of diminishing marginal utility suggests that
consumers experience diminishing additional satisfction as they consume more of a good or service
What happens to the marginal rate of substitution as you move down along a convex indifference curve? Along a convex indifference curve, the marginal rate of substitution ___________________
decreases
What happens to the marginal rate of substitution as you move along a linear indifference curve? Along a linear indifference curve, the marginal rate of substitution _________________
is constant
The slope of an indifference curve measures
measures the marginal rate of substitution between the two goods in question.
Assume the price of CDs is $12 and the price of DVDs is $22. At those prices, Isabel consumes 17 CDs and 16 DVDs. Her marginal utility from the last CD consumed is 175 and her marginal utility from the last DVD consumed is 211. Without changing the combined amount spent on CDs and DVDs, Isabel can increase her utility by consuming _______CDs and ______ DVDs .
more, fewer
Marginal utility is more useful than total utility in consumer decision making because
optimal decisions are made at the margin
Explain why a marginal rate of substitution between two goods must equal the ratio of prices of the goods for the consumer to achieve maximum satisfaction. A consumer achieves maximum satisfaction when the marginal rate of substitution is equal to the ratio of prices because
otherwise the consumer could trade one good for another at market prices to obtain a higher level of satisfaction.
If your total satisfaction increases when you consume another unit, your marginal utility must be
postive
Refer to the diagram to the right. The consumer can afford consumption bundles
s,v,t,u
Suppose John is currently at point A on the indifference curve to the right. If he moves to point B, then
the level of utility remains constant because the marginal utility of pizza decreases and the marginal utility of Pepsi increases.
If a consumer always buys goods rationally, then
the marginal utility per doolar spent on all goods will be equal 9.1-20
The absolute value of the slope of the budget constraint is equal to
the price of good on the horizontal axis divided by the price of the good on the vertical axis.
If a consumer receives 20 utils from consuming two candy bars, and 25 utils from consuming three candy bars, the marginal utility of the second candy bar is ...
unknown as more information is needed to determine the answer - you cannot get the marginal utility without knowing the utils from the first candy bar
