1. Total and marginal utility
Poornima enjoys eating ice cream cones. The following table contains information on Poornima's utility from ice cream each week.
Fill in the two missing cells of the table.
|
Ice Cream (Cones)
|
Total Utility (Utils)
|
Marginal Utility (Utils per cone)
|
|
0
|
0
|
-
|
|
1
|
12
|
12
|
|
2
|
|
10
|
|
3
|
30
|
8
|
|
4
|
36
|
|
|
5
|
40
|
4
|
|
6
|
42
|
2
|
On the following graph, use the purple points (diamonds symbol) to plot Poornima'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 Poornima's marginal utility (MU) curve from consuming her first six cones of ice cream.
For Poornima, increasing her consumption of ice cream results in ________ marginal utility.
2. Balancing utility and price
Suppose Felix has to choose between purchasing high-definition televisions and milk.
Which of the following is the utility-maximizing rule that Felix 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 Milk/Price of Milk = MU of HDTVs/Price of HDTVs
MU of Milk/Price of HDTVs = MU of HDTVs/Price of Milk
MU of Milk = MU of HDTVs
(MU of Milk) x (Price of Milk) = (MU of HDTVs) x (Price of HDTVs)
Since milk costs little and high-definition televisions are expensive, it must follow that when people choose their optimal quantities of milk and high-definition televisions to purchase, the marginal utility they receive from the last gallon of milk they buy is ______ than the marginal utility they receive from the last high-definition television they buy.
3. Deriving demand from a marginal utility table with two goods
Lucia has a $10 snack budget that she uses to buy chips and granola. Assume the price of chips (PC) is fixed at $2. Table A shows Lucia's marginal utility (MU) and marginal utility per dollar (MU/P) she receives from the first through fifth bags of chips she buys each week. Table B shows the same information for granola when the price of a bag of granola (PG) is either $4 or $2. Assume that Lucia is a rational consumer who wants to maximize her utility.
|
Table A
|
|
Chips (Bags)
|
MU (Utils)
|
MU/P (If P = $2)
|
|
0
|
-
|
-
|
|
1
|
36
|
18
|
|
2
|
28
|
14
|
|
3
|
24
|
12
|
|
4
|
16
|
8
|
|
5
|
6
|
3
|
|
Table B
|
|
Granola (Bags)
|
MU (Utils)
|
MU/P (If P = $4)
|
MU/P (If P = $2)
|
|
0
|
-
|
-
|
-
|
|
1
|
48
|
12
|
24
|
|
2
|
40
|
10
|
20
|
|
3
|
28
|
7
|
14
|
|
4
|
20
|
5
|
10
|
|
5
|
8
|
2
|
4
|
If the price of a bag of granola is $4, the price of a bag of chips is $2, and Lucia spends her entire budget of $10, she will choose to buy ______ of chips and ______ of granola.
Now, suppose that granola goes on sale, and its price decreases to $2. Lucia's utility is now maximized if she buys ______ of chips and _________ of granola.
Suppose the price of chips is fixed at $2, and Lucia's budget is fixed at $10.
On the graph, use the blue line (circle symbols) to plot Lucia's demand for granola. Do this by placing one blue point (circle symbol) on Lucia's demand for granola when the price is $4 and the second blue point on Lucia's demand for granola when the price is $2.
4. Consumer surplus for an individual and a market
The following graph shows Alex's weekly demand for apple pie, represented by the blue line. Point A represents a point along his 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 Alex is willing to _______ pay for his 8th slice of apple pie each week. Since he 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, Alex would receive a consumer surplus of ______ from the 8th slice of apple pie he 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 Bob and Cho are the only consumers of shoes in a particular market. The following table shows their annual demand schedules:
|
Price (Dollars per pair)
|
Bob's Quantity Demanded (Pairs)
|
Cho's Quantity Demanded (Pairs)
|
|
10
|
32
|
64
|
|
20
|
20
|
48
|
|
30
|
12
|
32
|
|
40
|
4
|
24
|
|
50
|
0
|
16
|
On the following graph, plot Bob's demand for shoes using the green points (triangle symbol). Next, plot Cho's demand for shoes using the purple points (diamond symbol). Finally, plot the market demand for shoes using the blue points (circle symbol).
Now, suppose that Cho moves away, leaving Bob 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
Larry brings $120 to a football game to spend on hot dogs and beer. The following diagram shows his budget constraint:
According to the diagram, hot dogs cost ______ each, and beer costs ______ per glass.
Adjust the diagram to show how Larry's budget constraint would change if the price of beer decreased. (Assume the price of hot dogs and Larry's income 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 are in attached file.
Attachment:- Assignment Files.rar