ECO100Y5 Lecture Notes - Lecture 5: Demand Curve, Giffen Good, Indifference Curve
Get access
Related textbook solutions
Related Documents
Related Questions
3. Amy is shopping at a dollar store. She is currently buying 5 bracelets that cost $1 each and 4 sodas that cost $1 each. The table below indicates the marginal utility she obtains when she purchases this combination.
Quantity | Price per Unit | MU per unit | |
Bracelets | 5 | $1 | 30 |
Sodas | 4 | $1 | 40 |
A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is this consumer maximizing her utility?
If not, should she consume more bracelets or more sodas? Explain.
Answer the following assuming that one more bracelet is purchased and one less soda is consumed:
Recall the law of diminishing marginal utility. What happens to the Marginal Utility of bracelets and the Marginal Utility of soda?
What happens to the Total Utility received?
What happens to the total dollars spent?
Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable) of each good is independent of the consumption rate of other goods.
The price of X and Y are respectively $40 and $60. Use the following table of total utilities to answer the following questions.
Good | Total utility X | Total utility Y |
Ā 1 | Ā 20 | Ā 45 |
Ā 2 | Ā 38 | Ā 78 |
Ā 3 | Ā 54 | Ā 108 |
Ā 4 | Ā 68 | Ā 135 |
Ā 5 | Ā 80 | Ā 159 |
Ā 6 | Ā 90 | Ā 180 |
a. The marginal utility of the fourth unit of Y is__________.
b. The marginal utility of the fifth unit of X is___________.
c. The marginal utility per dollar spent on the third unit of X is__________.
d. The marginal utility per dollar spent on the second unit of Y is__________.
e. If the consumer has $420 to spend, ______ unit of X and _______units of Y maximize utility subject to the budget constraint. Explain.
f. If the consumer has $220 to spend, _______ units of X and_______ units of Y maximize utility subject to the budget constraint. Explain.
g. If the consumer wanted 4 units of X and 6 units of Y, what would have to be his/her budget constraint in order to maximize his/her utility? Explain.