1- If Isabelle's marginal utility for pizza is 10 and hermarginal utility for salads is 2, thenIsabelle will choose to eat five times more(a)salads than pizzas. (b) Isabelle will be ready to exchange five salads fora pizza.(c) Both of the above answers are correct.(d) None of the answers above is not correct.2- Consider a consumer who consumes two goods,good 1 and good2. We denote by p1 the price of thegood1 and by p2 the price of the good2. We denote byUm1 the marginal utility of good 1 for the consumer andby Um2 its marginal utility of good 2. The quantity ofgood 1 that the consumer must give up in order to beable to consume an additional unit of good 2 is equal to:(a) -p1 / p2(b) -p2 / p1(c) -um1/ um2-Um2 / Um1.3-Consider a consumer who consumes two goods, good 1and good 2. We denote by q1 his consumption of good 1and by q2 his consumption of good 2.Graphically, we measure the quantity of good 1 on theabscissa and the quantity of good 2 on the order.Suppose the following two consumption baskets are onthe consumer's budget line: (q1 '; q2') = (9; 1) and (q1 ",q2") = (4; 56).What is the slope of the consumer's budget line?4- Consider a consumer who consumes two goods,good 1 and good 2. We denote by q1 his consumption ofgood 1 and by q2 his consumption of good 2. Hispreferences for good 1 and good 2 can be representedby a utility function u (q1; q2) = Q1/ Q2 What axiom doconsumer preferences violate?(a) Completeness.(b) Transitivity.(c) Monotonicity.(d) Consumer preferences do not violate any of theabove three axioms

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1- If Isabelle's marginal utility for pizza is 10 and her marginal utility for salads is 2, then (a) Isabelle will choose to eat five times more salads than pizzas · (b) Isabelle will be ready to exchange five salads for a pizza. (c) Both of the above answers are correct. (d) None of the answers above is not correct.

1- If Isabelle's marginal utility for pizza is 10 and her marginal utility for salads is 2, then (a) Isabelle will choose to eat five times more salads than pizzas · (b) Isabelle will be ready to exchange five salads for a pizza. (c) Both of the above answers are correct. (d) None of the answers above is not correct.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 5CQQ

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Take Jeremys total utility information in Exercise 6.1, and use the marginal utility approach to confirm the choice of phone minutes and round trips that maximize Jeremys utility.
Would you expect marginal utility to rise or fall with additional consumption of a good? Why?
Would you expect total utility to rise or fall with additional consumption of a good? Why?
4. Liam initially has a weekly allowance of €24 to spend on eggs (at €0.40 per egg) and beans (at €0.80 per tin). Liam will only consume 4 eggs with each tin of beans and never changes this proportion. (a) What is the utility maximising amount of eggs and beans that Liam buys each week? (b) Suppose the price of eggs rise to €0.60 per egg but the price of beans falls to €0.60 per tin. At the same time, Liam's weekly allowance rises to €30. How much of each good will Liam now buy? Compare your answer to that in (a) and explain the difference, if there is one. Use a diagram to complement your answer.
3. Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis) a) Devise a utility function to represent these preferences. b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the budget constraint. c) Solve Tony's utility maximization problem and find the optimal combination. d) Suppose that a bottle of vodka cost has increased to $50. What will be his new optimal combination?
2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x, and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x1 and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (e) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint.
2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x1 and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x, and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (c) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint. (d) Explain the impact of the substitution effect and the income effect of the price change in part (c) on the individual's consumption of x, and x2. (Hint: For full credit, explain both the separate and combined impacts of substitution and income effects on x1. Do the same for x2).
1. A consumer has an income of $3024 to spend each day. The only two goods the consumer is interested in purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table below. The price of B does not change and is $378. The marginal utility per dollar from B is also shown in the table. But the price of A varies as shown in the table. The marginal utility per dollar from A when the price of A is $1512 and $756 is shown in the following table. Good A Good B Quantity MU MU/$1512 MU/$756 MU MU/$378 1 24 2 15 3 12 4 8 5 6 6 4 48 32 24 16 8 4 ||||| ||||| |||
True or false with reasoning: 1) _______When we claim that utility can be ordinally measured, we assume that the consumer is able to measure the total and marginal utility received when one extra unit of a commodity is consumed. 2)_______If MRS between two goods is constant, then having more of one good without having more of the other does not increase utility. 3)_______Marginal Utility increases until total utility is at a maximum and then marginal utility decreases.
4 Emily goes camping on the weekend and eats marshmallows (M) and crackers (C) there. She wants to match 1 marshmallow with 2 crackers, but does not eat in different proportion (i.e., perfect com- plement). The price of a marshmallow is 10 cents and the price of a cracker is 5 cents, and she spend up to $3 in total. a) Write down a utility function which represents Emily's preferences over marshmallows and crackers. b) How many marshmallows and crackers is she going to consume? (Hint: the first-order conditions will not help; draw the budget constraint and the indifference curves and look at the highest one that intersect the budget constraint). c) What is the exact value of Emily's indirect utility?
2. Preferences:a. Suppose Wendy consumes 10 sandwiches and 10 cups of coffee over the course of a week.Her utility at the end of the week is equal to10. Now suppose Amanda consumes the same bundle, but her utility at theend of the week is 20. Can we say that Amanda is twice as happy as Wendy?Why or why not. b. Alex prefers 3 slices of cake to 4 slices,4 slices of cake to 5 slices, and 3 slices of cake to 5 slices. What is so strange about Alex? Are Alex's preferences transitive? Is Alex an irrational consumer? Explain your answers briefly.
5. Leila currently buys 6 trips using public transportation with a marginal utility of 2, and 4 trips using ride-share with a marginal utility of 8. Suppose that the price of a trip through public transport is 12 and the price of a trip through ride share is 56. Is Leila currently maximizing her utility? Explain why or why not. If not, what is the optimal action to improve her utility?