ECON 2GG3 Lecture 7: Lecture 7
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Assume that an individual consumes three goods, X, Y, and Z. The marginal utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X, Y, and Z are, respectively, $1, $3, and $5. The total income of the consumer is $65, and the marginal utility schedule is as follows:
Units of good | Marginal utility of X (units) | Marginal utility of Y (units) | Marginal utility of Z (units) |
1 | 12 | 60 | 70 |
2 | 11 | 55 | 60 |
3 | 10 | 48 | 50 |
4 | 9 | 40 | 40 |
5 | 8 | 32 | 30 |
6 | 7 | 24 | 25 |
7 | 6 | 21 | 18 |
8 | 5 | 18 | 10 |
9 | 4 | 15 | 3 |
10 | 3 | 12 | 1 |
(a)Given a $65 income, how much of each good should the consumer purchase to maximize utility?
(b)Suppose income falls to $43 with the same set of prices; what combination will the consumer choose?
(c)Let income fall to $38; let the price of X rise to $5 while the prices of Y and Z remain at $3 and $5. How does the consumer allocate income now? What would you say if the consumer maintained that X is not purchased because he or she could no longer afford it?
Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?
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Question 2
What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?
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Question 3 (1 point)
What does the economic theory of marginal utility infer?
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Question 4
Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?
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Question 5 (1 point)
Why does the demand for a good become relatively more elastic?
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Question 6 (1 point)
Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?
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Question 7 (1 point)
What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?
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Question 8
Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?
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Question 9 (1 point)
Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?
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Question 10 (1 point)
Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?
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Question 11 (1 point)
What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?
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Question 12 (1 point)
What will happen when there is an increase in the price of eBook downloads?
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Question 13 (1 point)
When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?
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Question 14 (1 point)
Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?
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Question 15 (1 point)
When is producer surplus a positive value?
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