ECN 104 Lecture 6: lecture 6
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- Consumer Behavior and Utility (10pts): Below is a table showing the total utility Kim would get for consumption of various amounts (units) of three products: toy planes, trains, and automobiles. Assume that the prices are $10, $15, and $5 respectively, and Kim has an income of $160.
Planes (price = $10) | Trains (Price = $15) | Automobiles (price = $5) | |||||||||||
Units | Total utility (TU) | Marg. Utility (MU) | MU per dollar | Units | Total utility (TU) | Marg. Utility (MU) | MU per dollar | Units | Total utility (TU) | Marg. Utility (MU) | MU per dollar | ||
0 | 0 | -- | -- | 0 | 0 | -- | -- | 0 | 0 | -- | -- | ||
1 | 100 | 1 | 300 | 1 | 60 | ||||||||
2 | 190 | 2 | 540 | 2 | 110 | ||||||||
3 | 270 | 3 | 720 | 3 | 150 | ||||||||
4 | 340 | 4 | 870 | 4 | 180 | ||||||||
5 | 400 | 5 | 990 | 5 | 205 | ||||||||
6 | 450 | 6 | 1080 | 6 | 225 | ||||||||
7 | 490 | 7 | 1140 | 7 | 235 | ||||||||
8 | 510 | 8 | 1170 | 8 | 240 |
Please answer the following questions. You must show all of your work where calculations are required:
a.Fill in the columns for MU and MU/P for each of the three goods to complete the table above (6pts)
b.What is the combination of planes, trains, and automobiles Kim should choose in order to maximize her total utility? How do you know this is the utility maximizing combination? Include a brief explanation of 25 words to receive full credit. (2pts)
c.Calculate Kim
- Suppose a particular consumer has 8 birrs to be spent on two goods, A and B. The unit price of good A is 2 birr and the unit price of B is 1 birr. The marginal utility (MU) she gets from the consumption of the goods is given below.
Quantity |
TUA |
TUB |
1 |
36 |
30 |
2 |
24 |
22 |
3 |
20 |
16 |
4 |
18 |
12 |
5 |
16 |
10 |
6 |
10 |
4 |
- Based on the cardinal analysis, what is the combination of the two goods that gives maximum utility to the consumer?
- What is the total utility at the utility maximization level?
QUESTION 1
The demand for oranges increases while the supply decreases. The equilibrium price of oranges ________, and the equilibrium quantity ________.
falls; increases | ||
falls; perhaps changes but we can't say if it increases, decreases, or stays the same | ||
rises; decreases | ||
rises; perhaps changes but we can't say if it increases, decreases, or stays the same |
1 points
QUESTION 2
Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity is ________.
rises; increases | ||
falls; decreases | ||
falls; does not change | ||
rises; does not change |
1 points
QUESTION 3
Bagels and cream cheese are complementary goods. Suppose that the price for flour, which is used to produce bagels, increases. The equilibrium price of cream cheese ________ and the equilibrium quantity of cream cheese ________.
does not change; does not change | ||
rises; increases | ||
falls; decreases | ||
rises; decreases |
1 points
QUESTION 4
If consumers buy a large number of plug-in electric cars, the equilibrium price of electricity will ________ and the equilibrium quantity of electricity will ________.
rise; increase | ||
rise; decrease | ||
fall; increase | ||
fall; decrease |
1 points
QUESTION 5
Which of the following shifts the supply curve for oranges?
an increase in income for all orange consumers if oranges are a normal good | ||
disastrous weather that destroys about half of this year's orange crop | ||
an increase in the price of bananas, a substitute in consumption for oranges | ||
a newly discovered increase in the nutritional value of oranges |
1 points
QUESTION 6
Which of the following shifts the supply curve of rutabagas rightward? (A rutabaga is a potato-like vegetable.)
normal goods in production. | ||
an exceptionally cold summer that killed much of the rutabaga crop. | ||
a fall in the price of fertilizer used to grow rutabagas. | ||
an increase in the price of a rutabaga |
1 points
QUESTION 7
Suppose over the next several years the productivity of firms producing electric cars improves dramatically. The advance in productivity leads to
an increase in the supply electric cars so that the supply curve shifts rightward. | ||
an increase in the supply of electric cars so that the supply curve shifts leftward. | ||
a decrease in the supply of electric cars so that the supply curve shifts rightward. | ||
a decrease in the supply of electric cars so that the supply curve shifts leftward. |
1 points
QUESTION 8
Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then
the demand for hot dogs will increase. | ||
the demand for hot dog buns will decrease. | ||
the quantity demanded of hotdogs will decrease. | ||
the demand for hot dog buns will increase. |
1 points
QUESTION 9
Demand curves slope ________ because as the price increases and other things remain the same, the quantity demanded ________.
upward; increases | ||
downward; decreases | ||
upward; decreases | ||
downward; increases |
1 points
QUESTION 10
Water bottlers announce that next month the price of bottled water will rise by 25 percent. Which of the following occurs immediately?
The quantity of bottled water demanded increases. | ||
The demand for bottled water increases. | ||
The quantity of bottled water demanded decreases. | ||
The demand for bottled water decreases. |
1 points
QUESTION 11
If the price of carrots is below the equilibrium price, the
quantity supplied of carrots exceeds the quantity demanded and a shortage exists. | ||
quantity demanded of carrots exceeds the quantity supplied and a shortage exists. | ||
quantity supplied of carrots exceeds the quantity demanded and a surplus exists. | ||
quantity demanded of carrots exceeds the quantity supplied and a surplus exists. |
1 points
QUESTION 12
Which of the following is true regarding demand?
i. Demand is the relationship between quantity demanded and the price of a good when all other influences on buying plans remain the same.
ii. Demand refers to one quantity at one time.
iii. "Demand" and " quantity demanded" are the same thing.
both i and ii | ||
i only. | ||
ii only. | ||
iii only. |
1 points
QUESTION 13
Suppose the current price of a pound of steak is $6 per pound and the equilibrium price is $9 per pound. What takes place?
There is a shortage, so the price rises and quantity demanded decreases. | ||
There is a shortage, so the price rises and quantity demanded increases. | ||
There is a shortage, so the price falls and quantity demanded increases. | ||
There is a surplus, so the price falls and quantity demanded increases. |
1 points
QUESTION 14
The number of corn producers increases, so the supply of corn ________ and the supply curve of corn ________.
decreases; shifts leftward | ||
decrease; shifts rightward | ||
increases; shifts rightward | ||
increases; shifts leftward |
1 points
QUESTION 15
Market equilibrium
i. can never occur because there are always people who want a good but cannot afford it.
ii. occurs at the intersection of the supply and demand curves.
iii. is the point where the price equals the quantity.
iii only | ||
ii and iii | ||
ii only | ||
i only |
1 points
QUESTION 16
Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese?
The supply of cheese stays the same and there is a decrease in the quantity supplied of cheese. | ||
The supply of cheese decreases. | ||
The supply of cheese stays the same and there is no change in the quantity supplied of cheese. | ||
The supply of cheese increases. |
1 points
QUESTION 17
Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the
demand for Dell computers decreases. | ||
demand for Apple computers increases. | ||
demand for Apple computers decreases. | ||
demand for Dell computers increases. |
1 points
QUESTION 18
Suppose the current price of a pound of steak is $12 per pound and the equilibrium price is $9 per pound. In this case, there is a
surplus, so the price rises and quantity demanded increases. | ||
shortage, so the price rises and quantity demanded decreases. | ||
surplus, so the price falls and quantity demanded increases. | ||
shortage, so the price falls and quantity demanded increases. |
1 points
QUESTION 19
Plywood is used in the construction of houses. If the price of plywood rises, what happens to the supply of houses?
The supply increases so that the supply curve shifts rightward. | ||
The quantity supplied increases but there is no shift in the supply curve. | ||
The supply decreases so that the supply curve shifts leftward. | ||
The quantity supplied decreases but there is no shift in the supply curve. |
1 points
QUESTION 20
In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior?
The store is trying to increase its customers' demand for the product. | ||
The law of demand is being used to increase the quantity demanded. | ||
The store manager must be trying to drive away customers by selling low quality products. | ||
The store is trying to increase its consumer's incomes by increasing their purchasing power. |
1 points
QUESTION 21
Suppose that the price of flour used to produce bagels increases. Hence the equilibrium price of a bagel ________ and the equilibrium quantity ________.
rises; increases | ||
rises; decreases | ||
falls; increases | ||
falls; decreases |
1 points
QUESTION 22
If both the supply and demand curves shift simultaneously, we can always predict what will happen to
either the price or the quantity, but not both. | ||
only the quantity. | ||
only the price. | ||
both the price and the quantity. |
1 points
QUESTION 23
If income increases and the demand for bus rides decreases,
bus rides are a substitute good. | ||
consumers are behaving irrationally. | ||
bus rides are an inferior good. | ||
bus rides are a normal good. |
1 points
QUESTION 24
A surplus of cardboard boxes means that
at the current price of a cardboard box, the quantity demanded equals the quantity supplied and the price will fall to restore the equilibrium.. | ||
the current price of a cardboard box is less than the equilibrium price. | ||
at the current price of a cardboard box, the quantity demanded exceeds the quantity supplied. | ||
at the current price of a cardboard box, the quantity demanded is less than the quantity supplied. |
1 points
QUESTION 25
If a freeze destroys oranges before they are harvested, the equilibrium price of an orange ________ and the equilibrium quantity ________.
rises; increases | ||
rises; decreases | ||
falls; increases | ||
falls; decreases |
1 points