Exhibit A
Demand and Marginal Utility
Pizza Pies Compact Disks Movies
Total Marginal Total Marginal Total Marginal
Quant. Utility Utility ___ Quant. Utility Util. ___ Quant. Utility Utility ____
1 90 1 60 1 30
2 130 2 90 2 45
3 160 3 105 3 50
4 180 4 115 4 53.5 __
5 185 5 120 5 55 __
6 150 6 122 6 56 __
Complete all relevant information in the above chart. Exhibit A provides C. Chan's hypothetical total utility schedule for three goods--pizza pies, compact disks, and movies. Assume that the price of a pizza is $15, the price of a compact disk is $15, and the price of a movie is $7.50. How many units of each good will C. Chan consume if he spends all of his income of $85 a month on these three goods.
How do your answers change if the price of movies is $10? $5?
Plot the demand curve for movies.
What is the price elasticity of demand for movies if the price rises from $7.50 to $10.00?
What is the price elasticity of demand for movies if the price falls from $7.50 to $5.00?
Use the mean or arc elasiticity formula for the above two questions.
II. Individuals A, B, and C have the following individual demand curves:
QA = 10 - P
QB = 18 - 3P
QC = 14 - .5P
Make a price quantity chart for each consumer. Then add a column showing the total quantity demanded for a private good.
Next show the quantity price chart showing the total demand for a public good.
Graph all 5 demand curves on the same graph.
If the marginal cost is $4 a unit how many units should be bought if the good is a private good? How many units would each individual buy?
If the marginal cost is $4 a unit, how many units should be bought if the good is a public good? How much would each person be willing to pay?
Do consumers of public goods have the same incentives to reveal their true valuations of Public goods as they do of Private goods? Why or why not?