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Microeconomics

2002. Microeconomics. Question 3. The table below shows total utility in utils that a utility-maximizing consumer receives from consuming two goods: apples and oranges. Apples Oranges Quantity Total utility Quantity Total utility 0 0 0 0

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Microeconomics

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  1. 2002 Microeconomics Question 3

  2. The table below shows total utility in utils that a utility-maximizing consumer receives from consuming two goods: apples and oranges. Apples Oranges QuantityTotal utilityQuantityTotal utility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80

  3. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$2 > 30 15 20 > 20 > 20 15 15 10 > > 10 > 15 10 7.5 > 5 5 > 10 5 > 2 > 2.5 2 5 Assume that apples cost $1 each, oranges cost $2 each, and the consumer spends the entire income of $7 on apples and oranges. • Using the concept of marginal utility per dollar spent, • identify the combination of apples and oranges the • consumer will purchase. Explain your reasoning.

  4. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$2 > 30 15 20 > 20 > 20 15 15 10 > > 10 > 15 10 7.5 > 5 5 > 10 5 > 2 > 2.5 2 5 • Using the concept of marginal utility per dollar spent, • identify the combination of apples and oranges the • consumer will purchase. Explain your reasoning. The consumer will purchase 3 apples and 2 oranges because this is where the Mu/per dollar is equal and where the consumer maximizes satisfaction for a total utility of 95. (Maximum utility answer is not good enough.)

  5. Finished • The question continues if you want more!

  6. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$2 > 30 15 20 > 20 > 20 15 15 10 > > 10 > 15 10 7.5 > 5 5 > 10 5 > 2 > 2.5 2 5 • With the prices of apples and oranges remaining • constant (apples $1, oranges $2), assume that the • consumer’s income increases to $12. Identify each of • the following. 4 apples and 4 oranges because that is where Mu/per dollar is equal. • The combination of apples and oranges the • consumer will now purchase.

  7. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$2 > 30 15 20 > 20 > 20 15 15 10 > > 10 > 15 10 7.5 > 5 5 > 10 5 > 2 > 2.5 2 5 • With the prices of apples and oranges remaining • constant (apples $1, oranges $2), assume that the • consumer’s income increases to $12. Identify each of • the following. 4 apples and 4 oranges because that is where Mu/per dollar is equal. • The total utility the consumer will receive from consuming the combination in (i) 50 + 75 = 125 utils

  8. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$4 > 30 7.5 20 > 20 > 20 15 15 5 > > 10 > 15 10 3.75 > 5 5 > 10 2.5 > 2 > 2 5 1.25 (c ) With income remaining at $12, assume the price of oranges increases to $4 each (apples remain at $1 each). Identify each of the following. • The combination of apples and oranges the • consumer will now purchase. 4 apples and 2 oranges

  9. Apples Total Oranges Total QuantityutilityQuantityutility 0 0 0 0 1 20 1 30 2 35 2 50 3 45 3 65 4 50 4 75 5 52 5 80 Mu Mu Mu/$1 Mu/$4 > 30 7.5 20 > 20 > 20 15 15 5 > > 10 > 15 10 3.75 > 5 5 > 10 2.5 > > 2 2 5 1.25 (c ) With income remaining at $12, assume the price of oranges increases to $4 each (apples remain at $1 each). Identify each of the following. 4 apples and 2 oranges • The total utility the consumer will receive from consuming the combination in (i) 50 + 50 = 100 utils

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