The table below shows the total benefit, in dollars, that Diana derives from consuming two goods, Good G and donuts. Quantity of Good G Total Benefit of Good G 0 $0 $40 $70 $90 2 3 4 5 6 $100 $103 $105 Quantity of Donuts 0 1 2 3 4 5 6 Total Benefit of Donuts $0 $80 $120 $140 $152 $156 $156 Diana has a limited weekly income of $20, and she spends it all on Good G and donuts. Assume the price of Good G is $2 per unit and the price of a donut is $4. (a) Identify the quantity of Good G and the quantity of donuts that will maximize Diana's total benefit given her weekly income. Explain using marginal analysis. (b) Calculate Diana's consumer surplus from the fourth donut. Show your work. (c) If Diana's weekly income decreases from $20 to $18, would Diana be able to buy 5 units of Good G and 2 donuts? Explain using numbers.
The table below shows the total benefit, in dollars, that Diana derives from consuming two goods, Good G and donuts. Quantity of Good G Total Benefit of Good G 0 $0 $40 $70 $90 2 3 4 5 6 $100 $103 $105 Quantity of Donuts 0 1 2 3 4 5 6 Total Benefit of Donuts $0 $80 $120 $140 $152 $156 $156 Diana has a limited weekly income of $20, and she spends it all on Good G and donuts. Assume the price of Good G is $2 per unit and the price of a donut is $4. (a) Identify the quantity of Good G and the quantity of donuts that will maximize Diana's total benefit given her weekly income. Explain using marginal analysis. (b) Calculate Diana's consumer surplus from the fourth donut. Show your work. (c) If Diana's weekly income decreases from $20 to $18, would Diana be able to buy 5 units of Good G and 2 donuts? Explain using numbers.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question

Transcribed Image Text:The table below shows the total benefit, in dollars, that Diana derives from
consuming two goods, Good G and donuts.
Quantity of Good G
0
1
2
3
4
5
6
Total Benefit of Good G
$0
$40
$70
$90
$100
$103
$105
Quantity of Donuts
0
1
2
3
4
5
6
Total Benefit of Donuts
$0
$80
$120
$140
$152
$156
$156
Diana has a limited weekly income of $20, and she spends it all on Good G and
donuts. Assume the price of Good G is $2 per unit and the price of a donut is $4.
(a) Identify the quantity of Good G and the quantity of donuts that will maximize
Diana's total benefit given her weekly income. Explain using marginal analysis.
(b) Calculate Diana's consumer surplus from the fourth donut. Show your work.
(c) If Diana's weekly income decreases from $20 to $18, would Diana be able to buy
5 units of Good G and 2 donuts? Explain using numbers.
(d) Suppose that donuts are produced in a perfectly competitive market and the
price of sugar, an input to the production of donuts, increases. If donuts are a
normal good, will the quantity of donuts that will maximize Diana's total benefit
increase, decrease, or stay the same? Explain.
(e) Suppose instead that the price of Good G increases by 9% and Diana buys 6%
less of Good G and 3% fewer donuts. Based on this change, identify whether Good
G and donuts are substitutes, complements, or not related. Explain using numbers.
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