ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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The concept of diminishing marginal utility says that the satisfaction level of human beings drop as we get more of something. Because of this, we place less value in the good or service and human beings will then demand lower prices for additional units. True or False
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- People who misunderstand the optimal purchase rule argue that if a consumer buys so much of a good that it's price is equal to marginal utility, she could not be behaving optimally. Rather, they sat, she would be better of quitting while she was ahead, or buying a quantity such that marginal utility is much greater than the price. What's wrong with this argument? Answer with a grapharrow_forwardWhich of the following statement is TRUE Group of answer choices As the consumption of a good increases, marginal utility rises, but total utility falls. As the consumption of a good increases, total utility falls and marginal utility falls. As the consumption of a good increases, total utility rises, but marginal utility falls.arrow_forwardTwo students, Nick and Sofia, are discussing normal and inferior goods. Nick says that if Frodo buys more beer when the price of beer goes up, then beer must be an inferior good for Frodo. If, on the other hand, he buys less beer when the price of beer goes up, then beer must be a normal good for Frodo. Sofia disagrees: "Normal and inferior goods are about income changes, not price changes. Therefore, we do not have enough information: beer could be an inferior or normal good in either of these cases." Do you agree or disagree? Carefully explain your point of view. Support your argument with graphs of income, substitution and total effects (please put beer on the horizontal axis and the other goods on the vertical axis). Please assume that Frodo's preferences over beer and other goods are strictly convex and satisfy "more is better" assumption.arrow_forward
- Mr. Rational has $27 that he plans to spend purchasing 5 units of good X (priced at $3 per unit) and 6 units of good Y (priced at $2 per unit). The marginal utility of the fifth unit of X is 30, and the marginal utility of the sixth unit of Y is 18. If Mr. Rational is a utility maximizer, he should: buy less of X and more of Y. buy X and Y in the quantities indicated. buy more of X and less of Y. not buy anything. buy less of X and even lesser than that of Y.arrow_forwardThere are only two brands of tennis balls Tom purchases: "Wilson" and "Penn." The more he purchases of a ball, the lower the marginal utility of that ball. He spends all of his income and his marginal utility of a "Wilson" is 6 and his marginal utility of an "Penn" is 12. The price of a "Wilson" ball is $1 and the price of an "Penn" is $2. Which of the statements is true based on the above information? Question 19 options: Tom could increase his satisfaction by a) trading "Wilson" for "Penn." In equilibrium, Tom must give up b) three "Penn" balls for two "Wilson" balls. Tom can increase his satisfaction by c) doing nothing Tom would be willing to give up two d) "Penn" balls for one "Wilson" ball.arrow_forwardQuestion 2 Horatio consumes 20 fries and 12 shakes per week. The price of fries is $3 each and shakes are $5 each. 2.1 What is the amount of income allocated to shakes and fries consumption? 2.2 What is the price ratio (the price of shakes relative to the price of fries)? 2.3 If Horatio maximizes utility, what is the ratio of the marginal utility of shakes to the marginal utility of fries? (Hint: Start with the rule that you know and then use a bit of algebra.) 2.4 If the price of fries falls, will Horatio consume more fries, fewer fries, or the same amount of fries? Explain your answer using the rule of equal marginal utility per dollar, and include a rationale.arrow_forward
- In workout problem 8.4, Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums currently cost $3 per unit and hollyhocks cost $4 per unit and if the price of delphiniums rises to $6 per unit, the income effect of the change in demand for delphiniums will be bigger than the substitution effect. there will be no change in the demand for hollyhocks. the entire change in demand for delphiniums will be due to the substitution effect. 1/3 of the change in demand will be due to the income effect. 2/3 of the change in demand will be due to the income effect.arrow_forwardWhich of the following statement is TRUE Group of answer choices As the consumption of a good increases, marginal utility rises, but total utility falls. As the consumption of a good increases, total utility falls and marginal utility falls. As the consumption of a good increases, total utility rises, but marginal utility falls.arrow_forwardThe marginal utility of good A is 4 utils, and its price is $ 2. The marginal utility of good B is 6 utils, and its price is $1. Is the individual consumer maximizing (total) utility if she spends a total of $3 by buying one unit of each good? If not, how can more utility be obtained? Explain using the Equimarginal principle.arrow_forward
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