Kayleena Ausbie

PROBLEM SET 1

Microeconomics - Utility

Use the information in this table to answer the questions that follow:

Unit ofProduct AProduct AProduct BProduct B

ProductPrice $1 - MUMU/P_a Price $2 - MUMU/P_b

110102412

2 882010

377189

466168

555126

64463

73342

A.Given the above data, what is the utility maximizing combination with an income of $10.00

Answer: Product A: 2 units

Product B: 4 units

B.Assume the price of B drops to $1.What is the utility maximizing combination?

Answer: Product A: 4 units

Product B: 6 units

C.Construct a Demand Schedule for product B given the above data (use answers in A and B above for product B)

Price of Product B

QTY DEMANDED

2.00

12

1.50

16

1.00

24

0.50

48

D.What does this data indicate about the relationship between the Law of DMU and the Demand Curve?

The data indicates that this would be a downwards slope due to the consumption of the product. As the price falls, the qty demanded increases.