Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 7.A, Problem 1ARQ
To determine
The indifference curve and total utility.
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John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils. Does John show diminishing marginal utility for Coke or does he show increasing marginal utility for Coke? Suppose that John has $3 in his pocket. If Cokes cost $1 each and John is willing to spend one of his dollars on purchasing a first can of Coke, would he spend his second dollar on a Coke, too? What about the third dollar? If John’s marginal utility for Coke keeps on increasing no matter how many Cokes he drinks, would it be fair to say that he is addicted to Coke?
*use tables and/or graphs if possible, please original work
Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is
$2, and the price of an app is $1. Riley's preferences for ramen and apps are represented
by the indifference curves on the next page.
a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget
constraint.
b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine
how many bowls of ramen Riley will buy.
Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl.
c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget
constraint.
d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5).
Determine how many bowls of Ramen Riley will now buy.
e. Find the size and direction (positive or negative) of the substitution effect. As
part of your answer, state the starting quantity and ending quantity of bowls of
ramen that represent this effect.
f. Find the size and direction (positive or negative) of…
Farah has $100 to spend each month on bread and chicken. Suppose the price of bread is $4 a loaf and the price of chicken is $5 per pound.
Draw her budget constraint and label it BC0. Put bread on the horizontal axis and chicken on the vertical axis. Be sure to identify the intercept values.
Suppose Farah is a utility maximizer and she consumes 10 loaves of bread and 12 pounds of chicken. On the same graph you drew in part (a), draw an indifference curve to identify her optimal bundle. Label this bundle "E."
Is her budget exhausted? Verify your answer.
Now suppose Farah's income falls so that she can now devote only $80 to the two goods. Prices however remain unchanged. In the same diagram, graph her new budget constraint and label it BC1. Be sure to identify any new intercept values.
Following the change in income, can Farah consume the same bundle "E"? Explain your answer.
What must happen to her total utility following the decrease in her income?
Chapter 7 Solutions
Microeconomics
Ch. 7.1 - Prob. 1QQCh. 7.1 - Prob. 2QQCh. 7.1 - Prob. 3QQCh. 7.1 - Prob. 4QQCh. 7.A - Prob. 1ADQCh. 7.A - Prob. 2ADQCh. 7.A - Prob. 3ADQCh. 7.A - Prob. 1ARQCh. 7.A - Prob. 2ARQCh. 7.A - Prob. 1AP
Ch. 7.A - Prob. 2APCh. 7.A - Prob. 3APCh. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 8DQCh. 7 - Prob. 9DQCh. 7 - Prob. 10DQCh. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7P
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