Microeconomics: Principles & Policy
14th Edition
ISBN: 9781337794992
Author: William J. Baumol, Alan S. Blinder, John L. Solow
Publisher: Cengage Learning
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Chapter 5, Problem 2DQ
To determine
The reason behind
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From economic theory, the willingness of a consumer to give up consumption of one commodity (X) in exchange for an increase in some other commodity (Y) and remain equally satisfied can be mathematically calculated as their marginal utility of good X divided by their marginal utility of good Y. What is the economic term for this measure or concept?
Product M has a price of $7.95.
If the Total Utility an individual receives from
consuming 8 units of Product M is 249 and
the Total Utility for consuming one fewer unit
of Product M is 228, then what is the Marginal
Utility per Price of the 8th unit of Product M?
(Round your answer to 2 digits after the
decimal.)
You have £20 per week to spend, and two possible uses for this money: telephoning friends back home, and drinking coffee. Each hour of phoning costs £2, and each cup of coffee costs £1. Your utility function is U(X,Y) = XY, where X is the hours of phoning you do, and Y the number of cups of coffee you drink.
What are your optimal choices? What is the resulting utility level? You can use the standard result on the constrained maximization of such a function, but must state it clearly.
Now suppose the price of telephone calls drops to £1 per hour. What are your optimal choices? What is the resulting utility level?
How much income per week will enable you to achieve the same quantities at the new prices as the ones you chose before? What income will enable you to attain the same utility as you did before? Comment on your answer in the context of equivalent variation and compensating variation.
Chapter 5 Solutions
Microeconomics: Principles & Policy
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Similar questions
- Based on several observations, people at older ages tend to buy more luxurious products than when they were younger. Does this mean that diminishing marginal utility of money declines as people age?arrow_forwardWhen consumers have a budget, their utility is maximized by buying a combination of goods such that the marginal utility per dollar is the same for all of these goods. This is because if this were not the case, it would mean that the consumer hadn't used up their entire budget. of their insatiability. if a consumer could get higher marginal utility from one good than from others, they would want to buy more of that good, and less of others. if a consumer could get higher marginal utility from one good than from others, they would want to buy less of that good, and more of others. it guarantees them some variety.arrow_forwardDistinguish between cardinal and ordinal utilityarrow_forward
- The utility function of a buyer for x units of tea and y units of coffee is given by u(x, y) = x ^\alpha \times y ^\beta where 0 < \alpha < = 1 and 0 < \beta = 1. The buyer can spend a maximum amount of R in the tea - coffee shop, where unit prices of tea and coffee are p and q respectively. What amount of tea and coffee the buyer can purchase to maximise her utility? tea and coffee the buyer can purchase to maximise her utility?arrow_forwardAll goods have diminishing marginal utility, but for some goods (or activities), marginal utility falls quickly as you consume more, while for others, marginal utility falls slowly. Can you think of examples of goods that you continue to enjoy a great deal as your consumption increases? Can you think of goods for which your marginal utility decreases rapidly?arrow_forwardDefine Economic utilityarrow_forward
- What is the law of diminishing marginal utility for consumers, what is the learning curve of a producer? It seems that as the producer becomes more efficient at producing their product; the consumer tends to have less and less satisfaction from consuming one additional unit of the producer's product. Is this true (think in terms of only one producer and consumer)? Explain your answer.arrow_forwardA rational consumer would want as much as many goods as possible to maximize utility derived from consuming them. Explain.arrow_forward
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