Book: economics a contemporary introduction Chapter 6
Questions for Review Y is $5 per unit. Assuming that the consumer is in equilibrium 1. Law of Diminishing Marginal Utility Some restaurants offer and is consuming both X and Y, what must the marginal utility "all you can eat" meals. How is this practice related to dimin- of Y be? ishing marginal utility? What restrictions must the restaurant impose on the customer to make a profit? 6. Utility-Maximizing Conditions Suppose that the price of X is twice the price of Y. You are a utility maximizer who allocates 2. Law of Diminishing Marginal Utility Complete each of the fol- your budget between the two goods. What must be true about lowing sentences: the equilibrium relationship between the marginal utility levels a. Your tastes determine the you derive from consum- of the last unit consumed of each good? What must be true ing a particular good. about the equilibrium relationship between the marginal utility utility is the change in utility resulting levels of the last dollar spent on each good? from a change in the consumption of a good. c. As long as marginal utility is positive, total utility is_ 7. Market Demand Curve Given the many individual demand d. The law of diminishing marginal utility states that as an curves for a good, describe how to derive the market demand individual consumes more of a good during a given time curve for that good. period, other things constant, total utility 8. Consumer Surplus The height of the demand curve at a given 3. Marginal Utility Is it possible for marginal utility to be nega- quantity reflects the marginal valuation of the last unit of that tive while rotal utility is positive? If yes, under what circum- stances is it possible? good consumed. For a normal good, an increase in income shifts the demand curve to the right and therefore increases its height 4. Utility-Maximizing Conditions For a particular consumer, at any quantity. Does this mean that consumers get greater mar- the marginal utility of cookies equals the marginal utility of ginal utility from each unit of this good than they did before? candy. If the price of a cookie is less than the price of candy, Explain. andi m beinges is the consumer in equilibrium? Why or why not? If not, what 9. Consumer Surplus Suppose the supply of a good is perfectly should the consumer do to attain equilibrium? 5. Utility-Maximizing Conditions Suppose that marginal utility elastic at a price of $5. The market demand curve for this good of Good X = 100, the price of X is $10 per unit, and the price of is linear, with zero quantity demanded at a price of $25. Given that the slope of this linear demand curve is -0.25, draw a
