1. Total and marginal utility
Rosa enjoys eating ice cream cones. The following table contains information on Rosa's utility from ice cream each week.
Fill in the two missing cells of the table.
|
Ice Creams (Cones)
|
Total Utility (Utils)
|
Marginal Utility (Utils per cone)
|
|
0
|
0
|
-
|
|
1
|
30
|
30
|
|
2
|
|
25
|
|
3
|
75
|
20
|
|
4
|
90
|
|
|
5
|
100
|
10
|
|
6
|
105
|
5
|
On the following graph, use the purple points (diamonds symbol) to plot Rosa's total utility (TU) curve if she consumes zero, one, two, three, four, five or six cones of ice cream per week.
Note - Plot your points in the order in which you would like them connected, Line segments will connect the points automatically.
On the following graph, use the blue points (circle symbol) to plot Rosa's marginal utility (MU) curve from consuming her first six cones of ice cream.
For Rosa, increasing her consumption of ice cream results in ________ marginal utility.
2. Balancing utility and price
Suppose Carlos has to choose between purchasing jewelry and water.
Which of the following is the utility-maximizing rule that Carlos should follow while choosing the optimal quantities of these two goods? (Note: In the answer options that follow, MU stands for "marginal utility.")
- MU of Water/Price of Jewelry = MU of Jewelry/Price of Water
- MU of Water/Price of Water = MU of Jewelry/Price of Jewelry
- MU of Water = MU of Jewelry
- (MU of Water) x (Price of Water) = (MU of Jewelry) x (Price of Jewelry)
Since water costs little and jewelry is expensive, it must follow that when people choose their optimal quantities of water and jewelry to purchase, the marginal utility they receive from the last piece of jewelry they buy is _____ than the marginal utility they receive from the last gallon of water they buy.
3. Deriving demand from a marginal utility table with two goods
Rina has a $25 cosmetics budget that she uses to buy nail polish and lipstick. Assume the price of nail polish (PN) is fixed at $5. Table A shows Rina's marginal utility (MU) and marginal utility per dollar (MU/P) she receives from the first through fifth bottles of nail polish she buys each month. Table B shows the same information for lipstick when the price of a tube of lipstick (PL) is either $10 or $5. Assume that Rina is a rational consumer who wants to maximize her utility.
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Table A
|
|
Nail Polish (Bottles)
|
MU (Utils)
|
MU/P (If P = $5)
|
|
0
|
-
|
-
|
|
1
|
90
|
18
|
|
2
|
70
|
14
|
|
3
|
60
|
12
|
|
4
|
40
|
8
|
|
5
|
15
|
3
|
|
Table B
|
|
Lipstick (Tubes)
|
MU (Utils)
|
MU/P (If P = $10)
|
MU/P (If P = $5)
|
|
0
|
-
|
-
|
-
|
|
1
|
120
|
12
|
24
|
|
2
|
100
|
10
|
20
|
|
3
|
70
|
7
|
14
|
|
4
|
50
|
5
|
10
|
|
5
|
20
|
2
|
4
|
If the price of a tube of lipstick is $10, the price of a bottle of nail polish is $5, and Rina spends her entire budget of $25, she will choose to buy ______ of nail polish and _________ of lipstick.
Now, suppose that lipstick goes on sale, and its price decreases to $5. Rina's utility is now maximized if she buys ____ of nail polish and ________ of lipstick.
Suppose the price of nail polish is fixed at $5, and Rina's budget is fixed at $25.
On the graph, use the blue line (circle symbols) to plot Rina's demand for lipstick. Do this by placing one blue point (circle symbol) on Rina's demand for lipstick when the price is $10 and the second blue point on Rina's demand for lipstick when the price is $5.
4. Consumer surplus for an individual and a market
The market graph shows Alyssa's weekly demand for apple pie, represented by the blue line. Point A represents a point along her weekly demand. The market price of apple pie is $3.00 per slice, as shown by the horizontal black line.
From the previous graph, you can tell that Alyssa is willing to pay $_____ for his 8th slice of apple pie each week. Since she has to pay only $3.00 per slice, the consumer surplus he gains from the 8th slice of apple pie is $_____.
Suppose the price of apple pie were to fall to $2.25 per slice. At this lower price, Alyssa would receive a consumer surplus of $_____ from the 8th slice of apple pie she buys.
The following graph shows the weekly market demand for apple pie in a small economy.
Use the purple point (diamond symbol) to shade the area representing consumer surplus when the price (P) of apple pie is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the price falls to $2.25 per slice.
5. Individual and market demand
Suppose that Raphael and Susan are the only consumers of pizza slices in a particular market. The following table shows their annual demand schedules:
|
Price (Dollars per slice)
|
Raphael's Quantity Demanded (Slices)
|
Susan's Quantity Demanded (Slices)
|
|
1
|
40
|
60
|
|
2
|
25
|
40
|
|
3
|
15
|
30
|
|
4
|
5
|
20
|
|
5
|
0
|
10
|
On the following graph, plot Raphael's demand for pizza slices using the green points (triangle symbol). Next, plot Susan's demand for pizza slices using the purple points (diamond symbol). Finally, plot the market demand for pizza slices using the blue points (circle symbol).
Now, suppose that Susan moves away, leaving Raphael as the only consumer in the market. As a result, there will be a ______ the market demand curve because there will be a change in quantity demanded ________.
6. Shifts in a budget constraint
Sean brings $120 to a basketball game to spend on sodas and pizza. The following diagram (attached) shows his budget constraint:
According to the diagram, sodas cost $____ each, and pizza costs $____ per slice.
Adjust the diagram to show how Sean's budget constraint would change if he had brought less money to the arena. (Assume the prices of sodas and pizza remain the same.)
Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther.
Note - All graphs and diagrams are in attached file.
Attachment:- Assignment File.rar