1.Bill has $21 to spend this weekend and he wants to maximize his utility. He has looked at the 4 items he wants to buy and has calculated the utility for each of the items. Using his information, fill in the chart and tell Bill how many of each item he should purchase.

Item APrice $2

Total Utility

Marginal Utility

Marginal Utility/$

0

0

1

100

2

175

3

225

4

250

5

250

Item BPrice $3

TU

MU

MU/$

0

0

1

150

2

225

3

250

4

260

5

250

Item CPrice $4

TU

MU

MU/$

0

0

1

200

2

300

3

350

4

375

5

350

Item DPrice $5

TU

MU

MU/$

0

0

1

600

2

1000

3

1100

4

1000

5

600

2.At a certain pizza shop, a single customer could order a pizza dine-in for $12 but he could get a second one for $5 more. Explain what this has to do with marginal utility.

3.Many of you will remember the newspaper machines on the street. A customer could put in a quarter and open the door and remove his/her paper. What is unusual is that once the door is open, the customer has access to all of the newspapers and could just remove them all. Why did the news companies use this type of delivery system where people could pay for one and take them all?

4.Go to the eText and pull out a thorough definition of consumer choice. What is this concept? How does utility tie in with this concept? Explain the income and substitution effects. Also explain how they relate to consumer choice.