Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter6: Consumer Choices
Section: Chapter Questions
Problem 1SCQ: Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can...
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(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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc97d4ce1-7716-4e3e-ae05-b29cb2d5a551%2Ffd3f54af-d065-475b-be12-b2ba85f09a0e%2Fg0cegg_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
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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.
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