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12) Amy has the total utility values given above for video rentals a week. Complete the table by
calculating her marginal utilities.
13) The table above gives the utility Andy receives from different quantities of vanilla ice cream
cones. Complete the table.
14) The table above gives Jessie's marginal utility and total utility from tacos. Complete the
table.
15) The table gives the total utility Jamal derives from the consumption of eclairs and cream
puffs. Jamal has $12 to spend on these two confectionery goods. The price of an eclair is $3 and
the price of a cream puff is $1.50.
a. Jamal's budget is $12. In order for Jamal to maximize his utility, how many eclairs and cream
puffs should he buy?
b. Suppose the price of an eclair increase to $6. Jamal's income does not change and neither
does the price of a cream puff. What combination of eclairs and cream puffs will Jamal buy
now?
c. Using your answers to parts (a) and (b), derive two points on Jamal's demand curve for
eclairs.
16) Tris is shopping for pants and belts. He has a budget of $100. The price of a pair of pants is
$20 and the price of a belt is $5. His marginal utility schedules are above. What combination of
pants and belts does Tris buy? Explain your answer.
17) Ricardo likes to rent videos and attend concerts. The videos cost $4 and the concerts cost
$40. Ricardo's marginal utility from the last video is 20 units. Ricardo is maximizing his utility.
What is his marginal utility from the last concert he attended?
18) Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar
from the tenth slice of pizza and 200 units of utility per dollar from his second soda. Is Abe
maximizing his utility? Should Abe change his consumption of pizza and soda?
19) The table above gives Sam's marginal utility schedule for bananas and apples. Sam's fruit
budget is $10.
a. If bananas cost $1 per pound and apples cost $2 per bag, what is Sam's marginal utility per
dollar for all quantities of both goods?
b. What is the utility maximizing combination of bananas and apples for Sam?
c. If the price of bananas increases to $2 per pound, how does Sam's marginal utility per dollar
for bananas change?
d. At the banana price of $2 per pound, what is the new utility maximizing combination of
bananas and apples for Sam?
e. List two points on Sam's demand curve for bananas.
20) For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility
of good B is 60 and its price is $12. The consumer has allocated his entire budget. Is this
consumer maximizing his total utility? Explain your answer.
21) If Mark's marginal utility per dollar from the last taco is 15 and his marginal utility per dollar
from the last burrito is 20 units, what should Mark do to increase his total utility?
22) Suppose Jenny's marginal utility from another serving of fish is 40 and her marginal utility
from another serving of chips is 20. The price of a serving of fish is $10 and the price of a
serving of chips is $1. What should Jenny do to maximize her utility? Explain your answer.
12.10 Essay: Efficiency, Price, and Value
1) Explain the paradox of value.
2) "Water is very inexpensive. Thus the marginal and total utility of water is small." Analyze the
previous statements.
3) Does the fact that diamonds, which we do not need to survive, are more expensive than water,
which is a necessity, constitute a violation of utility maximization?
4) Why does gold, which is a relatively nonessential item, have a higher price than water, which
is essential to life?
5) Kevin allocates his budget according to rules of utility maximization. What are the rules of
utility maximization and how do they explain the paradox of value, which is that diamonds are
expensive but useless, while water is inexpensive but essential?
6) "Because the price of a diamond is much greater than the price of a gallon of water, the
consumer surplus from diamonds is greater than the consumer surplus from water." Is the
previous analysis correct? Explain your answer.
7) Does the fact that diamonds are so expensive imply that the demand curve for diamonds has a
positive slope? Use marginal utility theory to answer the question.
12.11 Essay: Appendix
1) What does the term "indifferent" mean and what is its relationship to an indifference curve?
2) "If Ivan says he is indifferent between the consumption of a new pair of jeans or a set of
earrings, he means that he does not want either product." Is the previous analysis correct?
Explain your answer.
3) Why do consumers prefer higher indifference curves?
4) "Every point on a budget line has an indifference curve passing through it." Explain if the
previous statement is correct or not.
5) Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of
his indifference curves are in the figure above.
a. Would Tom prefer his consumption to be at point a or at point b? At point b or at point c?
Explain your answers.
b. Between points a and b, what is Tom's marginal rate of substitution for a crab?
6) The figure above shows a preference map for Sarah, who likes hamburgers and milk shakes.
a. Which two combinations contain the same amount of hamburgers but different quantities of
shakes?
b. Which combination(s) does Sarah most prefer? Why?
c. Which combination(s) does Sarah least prefer? Why?
d. Between which combinations is Sarah indifferent? Why?
7) What is the marginal rate of substitution and how does it relate to an indifference curve?
8) "The marginal rate of substitution of the good measured along the x-axis increases as a
consumer moves downward along an indifference curve." Is the previous statement correct or
not?
9) "As Mike consumes more dates over the course of a day, it is likely that his marginal rate of
substitution of dates for other goods will rise." Is the previous statement correct or incorrect?
10) The figure above shows one of Bob's indifference curves for CDs and books.
a. Is the indifference curve steeper at point a or point b?
b. What is Bob's marginal rate of substitution at point a?
c. What is Bob's marginal rate of substitution at point b?
11) In an indifference curve/budget line framework, how does a consumer decide which of all
possible combinations of goods to purchase?
12) Describe the consumer equilibrium in the indifference curve/budget line model.
13) Mary likes to consume either pizza or spaghetti. She has $48 to spend on these meals.
a. One week the price of pizza is $8 and the price of spaghetti is $6. Mary uses the indifference
curve analysis she learned in microeconomics to decide how much of each type of meal to buy.
She puts pizza on the vertical axis and spaghetti on the horizontal axis. What is the marginal rate
of substitution at the combination of pizza and spaghetti that Mary chooses?
b. The next week, the price of pizza is $6 and the price of spaghetti is $8 so Mary adjusts her
consumption combination to maximize her total utility. What is her marginal rate of substitution
now?
14) The figure above gives a consumer's budget line and two indifference curves.
a. At which point is the marginal rate of substitution greater than the relative price?
b. At which point is the marginal rate of substitution less than the relative price?
c. Which point represents the consumer equilibrium?
15) "Every point on a demand curve represents a consumer equilibrium in the indifference curve
model." Explain why the previous statement is correct or not.
16) George has a $600 annual entertainment budget that he uses to buy trips to the movies and
dinners at local restaurants. The figure above shows indifference curves and budget lines for
these two goods. The price of a movie is $15.
a. Along budget line BL1, what is the price of a dinner?
b. What combination of dinners and movies will George select along budget line BL1?
c. Budget line BL2 represents a change in the price of dinners from that along BL1. What is the
new price of dinners along this budget line?
d. What combination of dinners and movies will George select along budget line BL2?
e. Use the information in this problem to give two points on George's demand curve for
dinners.
