The marginal valuation of the good, establish the consumer surplus and derive the demand curve. Concept Introduction: Consumer Surplus – The excess of consumers’ willingness to pay over what they actually pay (the ability to pay) for a good or service relative to the market price is the economic measure of consumer benefit known as the consumer surplus. Law of demand – The law states that as the price of a commodity falls its quantity demanded increases and vice versa, assuming all other variables to be constant. Linear Demand Equation – It expresses the quantity demanded as a function of price in the form, Qd= b + mp where b is the intercept and the slope m is constant. In other words, change in Qd with a one unit change in price is constant for a linear demand function. Law of Diminishing Marginal Utility – The law states that we consume more and more of a commodity, keeping the consumption of all other variables constant, the utility derived from the consumption of every additional unit diminishes. The marginal utility thus diminishes.

Question

(Table: Marginal Utility per Dollar of Twix) Use Table: Marginal Utility per Dollar of Twix. The price of Twix is $2 per bar. The marginal utility per dollar of the second bar of Twix is: Table: Marginal Utility per Dollar of Twix Bars Quantity of Twix bars Total utility 0 1 2 3 4 5 5. 16. 10. 2. 0 6 10 13 15 16

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Question

Chapter 6, Problem 7P

To determine

The marginal valuation of the good, establish the consumer surplus and derive the demand curve.

Concept Introduction:

Consumer Surplus – The excess of consumers’ willingness to pay over what they actually pay (the ability to pay) for a good or service relative to the market price is the economic measure of consumer benefit known as the consumer surplus.

Law of demand – The law states that as the price of a commodity falls its quantity demanded increases and vice versa, assuming all other variables to be constant.

Linear Demand Equation – It expresses the quantity demanded as a function of price in the form, Qd= b + mp where b is the intercept and the slope m is constant. In other words, change in Qd with a one unit change in price is constant for a linear demand function.

Law of Diminishing Marginal Utility – The law states that we consume more and more of a commodity, keeping the consumption of all other variables constant, the utility derived from the consumption of every additional unit diminishes. The marginal utility thus diminishes.

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(Table: Marginal Utility per Dollar of Twix) Use Table: Marginal Utility per Dollar of Twix. The price of Twix is $2 per bar. The marginal utility per dollar of the second bar of Twix is: Table: Marginal Utility per Dollar of Twix Bars Quantity of Twix bars Total utility 0 1 2 3 4 5 5. 16. 10. 2. 0 6 10 13 15 16

(Table: Marginal Utility per Dollar of Twix) Use Table: Marginal Utility per Dollar of Twix. The price of Twix is $2 per bar. If the price of Twix increases to $3 per bar, the marginal utility per dollar for each bar of Twix will: Table: Marginal Utility per Dollar of Twix Bars Quantity of Twix bars Total utility 10 0 1 6 2 10 3 13 15 16 5 O remain constant. O increase O decrease. O fluctuate randomly.

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