（D）Detailed calculation steps Andrea has a budget of £21 to spend on toothbrushes and tooth paste. He does notreceive any utility from owning a toothbrush, but for the consumption of every tube oftooth paste he gains a utility of 2 utils – but only if he owns a tooth brush. Without atooth brush, Andrea gains no utility from consuming tooth paste. In addition, afterconsuming 10 tubes of tooth paste, a toothbrush needs to be replaced, i.e., Andreaneeds to buy a new one. The current price of tooth brushes on the market is £5 andthe current price for tooth paste is £1 per tube. Assume that Andrea aims to maximiseconsumer surplus.a) In a graph, draw total utility as a function of number of toothpaste tubes,assuming that Andrea buys 1 tooth brush.b) How many tubes will Andrea buy if he wants to maximise consumer surplus,assuming that Andrea can buy any amount of tooth brushes? What is Andrea'stotal consumer surplus?c) How many tubes will he buy if the current price is £0.50 per tube?d) Find Andrea's income-consumption curve for tooth paste tubes for incomesbetween £0 and £21, assuming a price of £1 per tube.

Answered: d) Find Andrea's income-consumption…

d) Find Andrea's income-consumption curve for tooth paste tubes for incomes between £0 and £21, assuming a price of £1 per tube.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

（D）Detailed calculation steps

Andrea has a budget of £21 to spend on toothbrushes and tooth paste. He does not
receive any utility from owning a toothbrush, but for the consumption of every tube of
tooth paste he gains a utility of 2 utils – but only if he owns a tooth brush. Without a
tooth brush, Andrea gains no utility from consuming tooth paste. In addition, after
consuming 10 tubes of tooth paste, a toothbrush needs to be replaced, i.e., Andrea
needs to buy a new one. The current price of tooth brushes on the market is £5 and
the current price for tooth paste is £1 per tube. Assume that Andrea aims to maximise
consumer surplus.
a) In a graph, draw total utility as a function of number of toothpaste tubes,
assuming that Andrea buys 1 tooth brush.
b) How many tubes will Andrea buy if he wants to maximise consumer surplus,
assuming that Andrea can buy any amount of tooth brushes? What is Andrea's
total consumer surplus?
c) How many tubes will he buy if the current price is £0.50 per tube?
d) Find Andrea's income-consumption curve for tooth paste tubes for incomes
between £0 and £21, assuming a price of £1 per tube.

Expert Solution

Step 1

D) Income consumption curve(ICC) shows the combinations of various optimal bundles of goods that

will be consumed at different level of income. Specific demanded bundles have to be found for

different income levels.

Step by step

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