Economics (7th Edition) (What's New in Economics)
Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 10.A, Problem 6PA

Subpart (a):

To determine

The indifference curve of perfect substitutes.

Subpart (b):

To determine

The indifference curve of perfect substitutes.

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A consumer has a budget set aside for entertainment during the year, and they spend the budget on concerts and plays. The consumer has a strong preference for attending concerts over plays: the two activities are substitutes, but not very strong substitutes. Sketch the indifference curves for this consumer on a graph, with concert tickets on the vertical axis and play tickets on the horizontal axis. Briefly explain why the consumer might ultimately choose to purchase a large number of play tickets, even though they have a strong preference for concerts. Include a budget line on your graph to illustrate this case.
Suppose utility can be measured by "utils" and that Jim buys both coffee and bagels. The price of coffee is $2 and the price of a bagel is $3. If Jim is currently consuming coffee and bagels such that the marginal utility from the last cup of coffee consumed was 6 utils and the marginal utility from the last bagel consumed was 12 utils, is Jim maximizing utility? Why or why not? If not, what should Jim do? Explain in detail.
The following table shows Madison's utility from consuming popcorn and Coke. Suppose that Madison has income of $51.00, the price of popcorn is $6.00, and the price of Coke is $13.50. If Madison wants to maximize her utility, how much popcorn and Coke should she buy? Madison should buy boxes of popcorn and Quantity 1 2 3 4 5 6 Popcorn Marginal Utility 192 144 96 48 24 12 Coke Marginal Utility 144 108 72 36 18 9 cans of Coke. (Enter your responses as integers.)

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Economics (7th Edition) (What's New in Economics)

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