5. Alaina has eaten two bowls of ice cream at La Michoacana. She considers eating an additional bowl of ice-cream. As a rational consumer, Alaina should make her choice by comparing the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs. O True O False
Q: O b) When he consumes zero amount of good 2, his MRS12 is equal to 1
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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.Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a round—trip cost of 2 in gasoline money. He has a total of 10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in Table 6.6, figure out the points 011 Jeremys consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point.Would you expect total utility to rise or fall with additional consumption of a good? Why?
- 5. Vera is an impoverished graduate student who has only $100 a month to spend on food. She has read in a government publication that she can assure an adequate diet by eating only peanut butter and carrots in the Öxed ratio of 2 pounds of peanut butter to 1 pound of carrots, so she decides to limit her diet to that regime. a) If peanut butter costs $4 per pound and carrots cost $2 per pound, how much can she eat during the month? b) Suppose peanut butter costs rise to $5 because of peanut subsidied introduced by a politically sensitive government. By how much will Vera have to reduce her food purchases? c) How much in food stamp aid would the government have to give Vera to compensate for the e§ects of peanut subsidy? d) Explain why Veraís preferences are of a very special type here. How would you graph them?3. If the price of good 1 doubles and the price of good 2 triples, does the budget line become flatter or steeper?4. What is the definition of a numeraire good?The marginal utility for shoes and coffee is given below for five individuals. A pair of shoes costs $2, and a cup of coffee costs $1. Marginal Utility of Shoes Marginal Utility of Coffee Michelle 12 6 Renee 6 6 Douglas 6 3 Paul 3 6 Shannon 12 3 a. Which of these consumers are optimizing over their choices? Explain b. For those who are not, how should they adjust their spending?
- 4. Boundary optimum is the situation where optimal consumption involves consuming zero units of good 2. For instance, a person is indifferent between apple and orange what finally he didn’t like the apples so what should consumer equilibrium looks like.1. Suppose you earn $1500 per week and you consume only two types of goods per week- sandwiches and orange juice, which you purchase at a mini mart. Each sandwich cost $150 and an orange juice is $75 per cup. a) Construct a table showing the alternative combinations of the two products that are available. b)Plot the data in your table on a budget line. What is the slope of the budget line? What is the opportunity cost of one more cup of orange juice? And what is opportunity cost of one more sandwich? Do these opportunity cost rise, fall or remain constant as you purchase an additional unit of the product? c)Suppose the price of a cup of orange juice increased to $150. Construct a new table showing alternative combinations of sandwiches and orange juice. Construct the new budget line.The following table indicates Sharona’s marginal utilities from the additional consumption of goodsA and B. The first and third columns of the table show the quantities of goods A and B consumed.The second and the fourth columns show Sharona’s marginal utilities from each additional unit ofgoods A and B consumed. The price of A is $2 per unit, and the price of B is $4 per unit. IfSharona’s budget is $12, then what consumer equilibrium combinations would maximize her totalutility?Table 6.6QA MUA QB MUB1 24 1 482 22 2 443 18 3 364 12 4 24
- The table below shows the total benefit, in dollars, that Zeynep derives from consuming two goods, Good H and slices of pizza. Quantity of Good H Total Benefit of Good H Slices of Pizza Total Benefit of Pizza 0 $0 0 $0 1 $100 1 $15 2 $148 2 $27 3 $172 3 $36 4 $184 4 $42 5 $190 5 $45 6 $192 6 $45 Zeynep has a limited weekly income of $12, and she spends it all on Good H and slices of pizza. Assume the price of Good H is $2 per unit and the price of a slice of pizza is $1. (a) Identify the quantity of Good H and slices of pizza that will maximize Zeynep’s total benefit given her weekly income. Explain using marginal analysis. (b) Calculate Zeynep’s consumer surplus from the second slice of pizza. Show your work. (c) If Zeynep’s weekly income decreases from $12 to $10, would Zeynep be able to buy 5 units of Good H and 3 slices of pizza? Explain using numbers. (d) Suppose that pizza is produced in a perfectly competitive market and the price of cheese, an input to…This question concerns a person in an economy in which they only consumetwo commodities, coffee and cake. This person always consumes thesecommodities together in a fixed ratio; whenever they drink a cup of coffee, theyeat a single cake.This person has a budget of £99 to spend on coffee and cake. a. Price of coffee is £2 and the price of a cake is £1. ii. Price of coffee is £8 and the price of a cake is £1 iii. Price of coffee is £10 and the price of a cake is £1. b. Using the information from part a, draw an individual demand curve for coffee for this person. Briefly explain how you used the information frompart a to create the demand curve. c. Assume the price of coffee is £2 and the price of a cake is £1. This personnow decides to limit their consumption of coffee to one cup of coffee a dayand one cake a day. Discuss how this decision to limit their consumptioncontradicts the axioms of behaviour for consumptionhi, can you answer part c and part d for this question please, thanks 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…