ECON 4001.01 Lecture Notes - Lecture 1: Budget Constraint
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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.