Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 3CQQ
To determine
The marginal rate of substitution.
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It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute 4 pounds of a generic store brand for 2 pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution? Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? How would your answer change if the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound?
The following graph shows Hilary's weekly demand for cheesecake, represented by the blue line. Point A represents a point along her weekly demand curve. The market price of cheesecake is $3.00 per slice, as shown by the horizontal black line
From the previous graph, you can tell that Hilary is willing to pay $_______ for her 8th slice of cheesecake each week. Because she has to pay only$3.00 per slice, the consumer surplus she gains from the 8th slice of cheesecake is $_______. Suppose the price of cheesecake were to fall to $2.25 per slice. At this lower price, Hilary would receive a consumer surplus of $_______.from the 8th slice of cheesecake she buys.The following graph shows the weekly market demand for cheesecake in a small economy.
Use the purple point (diamond symbol) to shade the area representing consumer surplus when the price (P) of cheesecake is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the…
Suppose Coke and Pepsi are perfect substitutes for me, and right and left shoes are perfect complements.
A. Suppose my income allocated to Coke/Pepsi consumption is $100 per month, and my income allocated to right/left shoe consumption is similarly $100 per month.
a. Suppose Coke currently costs $0.50 per can and Pepsi costs $0.75 per can. Then the price of Coke goes up to $1 per can. Illustrate my original and my new optimal bundle with "Coke" on the horizontal and "Pepsi" on the vertical axis.
b. Suppose right and left shoes are sold separately. If right and left shoes are originally both priced at $1, illustrate (on a graph with "right shoes" on the horizontal and "left shoes" on the vertical) my original and my new optimal bundle when the price of left shoes increases to $2.
c. True or False: Perfect complements represent a unique special case of homothetic tastes in the following sense: Whether income goes up or whether the price of one of the goods falls, the optimal bundle…
Chapter 21 Solutions
Principles of Microeconomics (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- Natalie is always willing to give up 10 ounces of licorice for 1 ounce of chocolate. Mitchell, on the other hand, will always give up 10 ounces of chocolate for 1 ounce of licorice. Based on this information, answer the following questions: a. Do Natalie's preferences exhibit a diminishing marginal rate of substitution between chocolate and licorice? Why or why not? b. Assuming that Natalie and Mitchell have the same amount of money to spend on chocolate and licorice, who will purchase the most licorice? Why?Natalie is always willing to give up 10 ounces of licorice for 1 ounce of chocolate. Mitchell, on the other hand, will always give up 10 ounces of chocolate for 1 ounce of licorice. Based on this information, answer the following questions: a. Do Natalie's preferences exhibit a diminishing marginal rate of substitution between chocolate and licorice? Why or why not? b. Assuming that Natalie and Mitchell have the same amount of money to spend on chocolate and licorice, who will…arrow_forwardBob lives in San Diego and loves to eat desserts. He spends his entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.00, and a piece of apple pie is priced at $4.00. At his current consumption point, Bob's marginal rate of substitution (MRS) of pudding for pie is 4. This means that Bob is willing to trade four bowls of pudding per week for one piece of pie per week. Does Bob's current bundle maximize his utility—in other words, make him as well off as possible? If not, how should he change it to maximize his utility? Bob could increase his utility by buying more pudding and less pie per week. Bob's current bundle maximizes his utility, and he should keep it unchanged. Bob could increase his utility by buying less pudding and more pie per week.arrow_forwardQuestion 3 Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad. (1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect? (2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect? Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.arrow_forward
- 4. Jerry lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her utility function is U = 60SC (where S is the number of soft drinks per week and C the number of bags of chips per week), so her marginal utility of Sis 60C and her marginal utility of C is 60S. Soft drinks are priced at 10birr each, chips 5birr per bag. A. Write the expression for Jerry's marginal rate of substitution between soft drink and chips. B. Use the expression generated in part (A) to determine Jerry's optimal mix of soft drink and chips C. If Jerry has 100 birr per week to spend on chips and soft drink how many of each she she purchase per week? 5. Given the long run production function is Q = 200LK3 calculate A. AP and AP. B. MPL and MPK C. MRTSLK D. elasticity of substitution 6. Given the total cost function Q = Q - 4Q? + 14Q +60 A. Specify average variable, marginal cost and average total cost function B. Is average variable cost is reached at its minimum point at higher or…arrow_forwardA consumer has income of 15000. Masks costs $35 per mask, and sanitizers cost $70 per bottle. The price of mask rises from $35 to $40 per mask, while the price of saniizer is unchangeD. For a consumer wih consant income of 15000, show what happens to consumption of both goods (assume both goods are normal goods) decompose the change into income and substitution effectsarrow_forwardElizabeth M. Suburbs makes $200 a week at her summer job and spends her entire weekly income on new running shoes and designer jeans, because these are the only two items that provide utility to her. Furthermore, Elizabeth insists that for every pair of jeans she buys, she must also buy a pair of shoes (without the shoes, the new jeans are worthless). Therefore, she buys the same number of pairs of shoes and jeans in any given week. a. If jeans cost $20 and shoes cost $20, how many will Elizabeth buy of each? b. Suppose that the price of jeans raises to $30 a pair. How many shoes and jeans will she buy? c. Show your results by graphing the budget constraints from part a and part b. Also, draw Elizabeth’s indifference curves. d. To what effect (income or substitution) do you attribute the change in utility levels between part a and part b? e. Now we look at Elizabeth’s demand curve for jeans. First, calculate how many pairs of jeans she will choose to buy if jeans prices are $30, $20,…arrow_forward
- 7. MRS and utility maximization Suppose your classmate Eleanor loves to eat dessert-so much so that she allocates her entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.00, and the price of a piece of rhubarb pie is $3.00. At her current level of consumption, Eleanor's marginal rate of substitution (MRS) of apple crisp for pie is 3. In other words, Eleanor is willing to sacrifice three bowls of apple crisp for one piece of pie per week. Does Eleanor's current consumption bundle maximize her utility? That is, does it make her as well off as possible? If not, how should she change it to maximize her utility? Eleanor could increase her utility by buying more apple crisp and less pie per week. O Eleanor's current bundle maximizes her utility, and she should keep it unchanged. O Eleanor could increase her utility by buying less apple crisp and more pie per week.arrow_forwardAngela and Vanessa are two friend who always eat ice cream together. The regular price of ice cream is $1 per spoon. Angela always orders 3 spoons and Vanessa orders 5 spoons. Every Tuesday, the ice cream is 50% off. Angela orders 6 spoons and Vanessa order 7 spoons on Tuesday. Which of the following statement is incorrect? O The total quantity of ice cream demanded by Angela and Vanessa increased by 5 on every Tuesday. O Angela's individual demand curve has a downward sloping. O The promotion on every Tuesday shift out the demand curve. O Vanessa's individual demand curve isn't same as Angela's.arrow_forward5. Complements and substitutes Jake enjoys eating peanut butter sandwiches and drinking soda. He is particular about proportions, though: For every peanut butter sandwich he eats, he must drink exactly one glass of sods, and vice versa. Jake can purchase the peanut butter for his sandwiches in two jar sizes: 20 ounces and 40 ounces. Jake cares only about the total amount of peanut butter he has available and not at all about the jar size. In other words, he's just as happy with two 20-ounce jars as he is with one 40-ounce jar. In this scenario, peanut butter sandwiches and glasses of soda are Two possible bundles of peanut butter sandwiches and glasses of sods are shown on the following graph, labeled A and B. Using three purple points (diamond symbol), plot Jake's indifference curve that passes through point A (1₁). Then, using three orange points (square symbol), plot Jake's indifference curve that passes through point B (1₂). Hint: To plot both indifference curves, place one point…arrow_forward
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