Exam 6: Consumer Behaviour

The Smith family is allocating its monthly household expenditure between only two goods, food and Clothing. Suppose that the price of food is $12 per unit, and the price of clothing is $16 per unit and that the marginal utility that the family is receiving from its consumption of clothing is currently 200. What is the family's marginal utility from its consumption of food if it is maximizing its utility?

Consider the pizza market, with a downward- sloping demand curve and an upward- sloping supply curve. Suppose 100 pizzas are purchased at the free- market equilibrium price. The consumer surplus on the 100th pizza is

$\text { Dave's Consumer Surplus on DVD Rentals per Week }$ $\begin{array}{|c|c|l|}\hline \begin{array}{c}\text { Number of DVDs } \\\text { rented per week }\end{array} & \begin{array}{c}\text { Amount Dave is willing to } \\\text { pay to rent this DVD (\$) }\end{array} & \begin{array}{l}\text { Dave's consumer surplus } \\\text { on each DVD rental if } \\\text { price is } \$ 5 \text { each }\end{array} \\\hline \text { lst } & 10.00 \\\hline \text { 2nd } & 8.00 \\\hline \text { 3rd } & 6.50 \\\hline \text { 4th } & 5.50 \\\hline \text { 5th } & 5.00 \\\hline \text { 6th } & 4.50 \\\hline \text { 7th } & 4.25 \\\hline\end{array}$ $\text { TABLE 6-2 }$ -Refer to Table 6- 2. If Dave rents 3 DVDs in one week, his total consumer surplus is and the total amount he pays is .

FIGURE 6- 2 -Refer to Figure 6- 2. Suppose the price of X is $2, the price of Y is $1, and the consumer's income is $10. The consumer is currently buying 4 units of good X and 2 units of good Y. In order to maximize his utility, he should

The real purchasing power of an individual will NOT be affected if

Economists use the term "marginal utility" to describe the

For your typical consumption levels of water and diamonds, the good with the higher marginal utility is ; the good with the higher total utility is ; and the good with the greatest consumer surplus is .

FIGURE 6- 4 -Refer to Figure 6- 4. For both goods, the price increases from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Good Y is certainly a(n) good.

The table below shows the total value (in dollars) that Andrew gets from playing 9- hole rounds of golf. Rounds of Golf per Month Total Value (\ ) 0 0 1 40 2 70 3 92 4 108 5 120 6 130 7 130 TABLE 6- 3 -Refer to Table 6- 3. If the price of a 9- hole round of golf is $19, then Andrew will play rounds per month.

The income effect refers to the change in quantity demanded that occurs as a result of a change in

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer?

The demand curve for a good with an income elasticity of less than one

The substitution effect of a price change

FIGURE 6- 2 -Refer to Figure 6- 2. Suppose that the price of Y is $1 and the consumer's income is $10. Initially, the price of X is $2 and the consumer is buying 4 units of good Y. If the price of X then falls to $1, which of the following pairs of quantities of X correctly completes the demand schedule below? Price of X : \1 \2 Quantity Demanded of X: \_\_\_ \_\_\_

FIGURE 6- 2 -Refer to Figure 6- 2. Suppose the price of Y is $1 and the consumer's income is $10. Initially, the price of X is $2 and the consumer is buying 3 units of good X and 4 units of good Y. If the price of X then falls to $1, what quantities of X and Y will he/she now purchase in order to maximize total utility?

$\text { Toffee (bars) \quad Cashews (bags) }$ Units Marginal Utility Total Utility Marginal Total Utility Utility 1 10 10 12 12 2 8 18 10 22 3 5 23 7 29 4 3 26 5 34 5 1 27 2 36 6 0 27 1 37 7 0 27 0 27 $\text { TABLE 6- } 1$ -Refer to Table 6- 1. If the prices of both toffee bars and bags of cashews are $2 and this consumer has $14 per week to spend on these two snacks, what is the maximum total utility achievable?

FIGURE 6- 1 -Refer to Figure 6- 1. If this figure represents the utility obtained from consuming units of a good, how many units would this consumer consume if the good were free?

FIGURE 6- 2 -Refer to Figure 6- 2. Suppose that the price of X is $2, the price of Y is $1, and the consumer's income is $10. The consumer is currently buying 3 units of good X and 4 units of good Y. In order to maximize his/her utility, the consumer should

Suppose Arun consumes only 2 goods -- books and CDs -- and has a set of downward sloping indifference curves. As Arun moves from one point to another on a particular indifference curve,