Question 1. State and explain the law of diminishing marginal utility. Then, take THREE goods that you have purchased recently and Explain how your utility has behaved.
Question 2. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know? Show all your work.
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Units Total Utility Marginal
Consumed Utility
|
|
0 0
1 10 10
2 ___ 8
3 25 ___
4 30 ___
5 ___ 3
6 34 ___
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Question 3. State the theory of consumer behavior. Pick Two goods you have consumed recently and explain how each component of this theory has applied to those two goods.
Question 4. Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying the utility- maximizing combination of bread and milk? If not, how should she reallocate her expenditures between the two goods? Show all work.
Question 5. State the rule/law of utility maximization (or, consumer equilibrium). Explain IN YOUR OWN WORDS what it means.
Question 6. Based on this chapter(Consumer Behavior), explain why someone would pay $6 for a bottle of water at Yankee Stadium, but would only buy a case of that water at Pathmark if it were on sale for $4.99? How can this be?
Question 7. Consider the following information: Your income is equal to $ 12. You are to spend that income on goods x and good y. Good x costs $ 2 per unit and Good y costs $ 3 per unit. Show all work.
a. Using your knowledge of utility and consumer behavior and the data below, show exactly how you would spend your income, on which goods and why.
Q MU x MU y
1 90 150
2 84 120
3 80 90
4 60 60
b. At what point do you reach equilibrium? Why is that considered equilibrium? Explain how you arrived in/at equilibrium based on your work in 7a.