a. What is your marginal rate of substitution of $1 bills for $5 bills? b. Produce an indifference curve graph for your preferences over these two goods. Make sure you label your graph very carefully and precisely.
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- How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double?Assume that you only buy two goods, fish and Fanta soda. You are analyzing your personal consumption for the two goods. Assume that you have a weekly budget of $80, fish costs $5 per Ib and Fanta costs $2 a soda. a. Draw your budget line with Fanta on the y-axis. Calculate the x and y intercepts as well as the slope of the budget line. Include your personal indifference curve to show your optimal consumption between the two goods (assume that your indifference curve is such that you consume positive values of each good). 3. Assume that the price of fish falls from $5 per Ib to $4 per Ib. On a new graph draw the change in price along with the new intercept(s) and new optimal consumption point.Evaluate your marginal and total utility of consuming at an all you can eat pizza buffet. Explain when you could determine when you should stop consuming using the concept of marginal analysis
- Explain why it is that as the consumer purchases more of a good, her marginal utility falls while her total utility rises.Suppose that a consumer has an income of $10 per period, and that he must spend it all on meat or potatoes. If meat is $2.00 per pound and potatoes are $2.00 per pound, draw the consumer's budget line on a graph. identify the quantity of meat and potatoes that would be consumed.Draw YOUR indifference curve for the consumption of two goods (you pick the goods – be creative!) Make sure to include labels. Why did you choose these two goods? Why do you view these as being a tradeoff? Carefully explain why the indifference curve has the shape you created. (Hint: Discuss the slope. What it means and how it changes) Determine a budget that will be allocated towards your consumption of these two goods. Given the budget, prices for the goods, and your preferences, how will you find the utility-maximizing combination? Give an intuitive answer as well as a graphical answer (make sure to label the graph accordingly).
- What is marginal utility. Tell meWould you expect marginal utility to rise or fall with additional consumption of a good? Why? b. Raymond consumes meatloaves and pineapples. He has decided that hismonthly budget will be $1500. Suppose that one meatloaf costs $375, while one pineapple costs $150.i. What is the expression for Raymond’s budget constraint? ii. Draw a graph of Raymond’s budget line (meatloaf on the y axis). iii. Show how Raymond’s budget line changes if the price of pineapplesincreases to $370. iv. Suppose Raymond decides to cut his monthly budget in half.Coincidentally, the next time he shops, he learns that meatloaves andpineapples are on sale for half price. Show what happens to Raymond’sbudget line? c. Shannon consumes dresses and lemonade. The price of a dresses is $10 and the price of a lemonade is $30. She is spending all her income on the two goods and her marginal rate of substitution of lemonade for dresses is 2. Is she at an optimum? Explainwhat is UTILITY and UTILITY FUNCTION?
