Question 1:

1 . Total and marginal utility Jake enjoys eating ice cream cones. The following table contains information on Jake's utility from ice cream each week. Fill in the two missing cells of the table. Ice Cream Total Utility Marginal Utility (Cones) (Utils) (Utils per cone) 0 0 60 60 50 2 40 3 150 A 180 20 200 10 6 210 On the following graph, use the purple points (diamond symbol) to plot Jake's total utility (TU) curve if he consumes zero, one, two, three, four, five, or six cones of ice cream per week.On the following graph, use the purple points (diamond symbol) to plot Jake's total utility (TU) curve if he consumes zero, one, two, three, four, five, or six cones of ice cream per week. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 240 216 192 168 145 TOTAL UTILITY (Utils) 120 96 72 48 25 5 6 2 3 ICE CREAM (Cones)On the following graph, use the blue points (circle symbol) to plot Jake's marginal utility (MU) curve from consuming his first six cones of ice cream. 80 O 70 60 50 40 MARGINAL UTILITY (Utils) 30 20 10 2 5 ICE CREAM (Cones) For Jake, increasing his consumption of ice cream results in marginal utility.2 . Balancing utility and price Suppose Edison has to choose between purchasing jewellery and water. Which of the following is the utility-maximizing rule that Edison should follow while choosing the optimal quantities of these two goods? (Note: In the answer options that follow, MU stands for "marginal utility.") O MU of Water MU of Jewellery Price of Water Price of Jewellery MU of Water MU of Jewellery O Price of Jewellery Price of Water O (MU of Water) X (Price of Water) = (MU of Jewellery) X (Price of Jewellery) O MU of Water = MU of Jewellery Since water costs little and jewellery is expensive, it must follow that when people choose their optimal quantities of water and jewellery to purchase, the marginal utility they receive from the last gallon of water they buy is than the marginal utility they receive from the last piece of jewellery they buy.3 . Welfare analysis: Basic concepts Identify whether each statement in the following table best illustrates the concept of consumer surplus, producer surplus, or neither. Consumer Producer Statement Surplus Surplus Neither Even though I was willing to pay up to $40 for a jersey sweater, I bought a jersey sweater for only 0 O 0 $35. Even though I was willing to pay up to $142 for a watch, and even though the seller was willing to go as low as $138 in order to sell it, we couldn't reach a deal because the government imposed a O O 0 price floor of $149 on the sale of watches. I sold a used laptop for $135, even though I was willing to go as low as $130 in order to sell it. O O O 4 . Consumer surplus for an individual and a market The following graph shows Brian's weekly demand for pizza, represented by the blue line. Point A represents a point along his weekly demand. The market price of pizza is $3.00 per slice, as shown by the horizontal black line. Brian's Weekly Demand 7.50 .75 6.00 5.25 Demand 4.50 A PRICE (Dollars per slice) 3.75 Price 3.00 2.25 1.50 0.75 2 6 8 10 12 14 16 18 20 QUANTITY (Slices of pizza)From the preceding graph, you can tell that Brian is willing to pay | $ for his 8th slice of pizza each week. Since he has to pay only $3.00 per slice, the consumer surplus he gains from the 8th slice of pizza is Suppose the price of pizza were to fall to $2.25 per slice. At this lower price, Brian would receive a consumer surplus of from the 8th slice of pizza he buys. The following graph shows the weekly market demand for pizza in a small economy. Use the purple point (diamond symbol) to shade the area representing consumer surplus when the price (P) of pizza is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the price falls to $2.25 per slice. Small Economy's Weekly Demand 7.50 6.75 Initial Consumer Surplus (P = $3.00) 6.00 5.29 Demand A Additional Consumer Surplus (P = $2.25) PRICE (Dollars per slice) 3.75 P = $3.00 3.0 2.2 P = $2.25 1.50 0.75 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Thousands of slices of pizza)5 . Producer surplus for an individual and a market Suppose the market for apple pie is a perfectly competitive market-that is, sellers take the market price as given. Ana owns a restaurant where she sells apple pie. The following graph shows Ana's weekly supply curve, represented by the orange line. Point A represents a point along her supply curve. The price of apple pie is $3.00 per slice, as shown by the horizontal black line. Ana's Weekly Supply 7.50 6.75 6.00 5.25 4.50 3.75 PRICE (Dollars per slice) 3.00 Price 2.25 A 1.50 0.75 Supply 2 6 8 10 12 14 16 18 20 QUANTITY (Slices of apple pie)Asst # 5 (Ch 06) From the preceding graph, you can tell that Ana is willing to supply her 8th slice of apple pie for | $ each week. Since she receives $3.00 per slice, the producer surplus she gains from supplying the 8th slice of apple pie is Suppose the price of apple pie were to rise to $3.75 per slice. At this higher price, Ana would receive a producer surplus of from the 8th slice of apple pie she sells. The following graph shows the weekly market supply of apple pie in a small economy. Use the purple point (diamond symbol) to shade the area representing producer surplus (PS) when the price (P) of apple pie is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional producer surplus when the price rises to $3.75 per slice. (? ) Small Economy's Weekly Supply 7.50 6.75 6.00 Initial PS (P = $3.00) 5.25 A 4.50 Additional PS (P = $3.75) P = $3.75 PRICE (Dollars per slice) 3.75 3.00 P= $3.00 2.25 1.50 0.75 Supply 20 40 60 80 100 120 140 160 180 200 QUANTITY (Thousands of slices of apple pie)