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CHAPTER 6
1.1 (a) (d)
(b) (e)
(c) (f)
(g)
1.3 (a, b, d)
1.4 (a, c)
1.5 (a) The equation for the original budget constraint is 16X + 20Y = $640.
2.1
# of Cookies Marginal Utility
1 100
2 100
3 75
4 50
5 25
6 10
7 0
The maximum he would buy is 6 because the seventh yields no marginal utility.
2.2 If X = name-brand cigarettes and Y = generic cigarettes, then MUX / PX = 5 / 10 = 0.5, and MUY /
2.3 (a)
Cigars Brandy
No. Per
Month
TU M
U
MU/
S
Bottles Per
Month
TU M
U
MU/
S
1 2
828 4.67 1 15
0
15
05.00
2 4
12
(b) Yes, these figures are consistent with the law of diminishing marginal utility, which states that
(c) Four cigars and Four bottles of brandy. To maximize utility, the individual should allocate
(d) If the price of cigars rises to $9, only the MU/$ column for cigars needs to be recalculated:
Cigars
No. Per
Month
TU M
U
MU/
S
1 2 28 3.50
(e) Using the same logic as in part (c), Kendrick should purchase three cigars and four bottles of
2.4 Thomas should spend his $48 on 5 nights of bowling ($40 spent on bowling) and 2 nights of
2.5 Adrian will purchase 5 energy drinks and 4 protein bars to maximize his utility. His total utility is
2.6 If Darlene wants to receive maximum utility for each dollar she spends, it does not matter if she
3.1 (a) Remy can now afford to buy a greater combination of things than he bought last year. His real
(b) Remy is better off—his real income is higher—he will increase consumption of normal
3.2 Answers will vary, but based on the different sizes, climates, and geographic locations of these
3.3 For an inferior good, the income effect and the substitution effect work in opposite directions. If
4.1 Answers will vary because the question asks for personal choices; however, it is likely that
students may offer some of the following in response:
(a) Having to spend more money on gas will likely leave students with less money to spend on
(b) This represents an increase in income. Students may spend it on any number of goods, may
(c) If other prices and your mother’s income remain constant, you are likely going to have less
(d) Students might consume more of other goods (e.g., movies, clothing) because with half of the
(e) If you choose not to sell the stock, nothing will change, but if you choose to sell some or all
(f) Students may work more hours because of the high wage or may work fewer hours since they
4.2 This statement is backwards. An increase in the “after-tax” wage will have a positive effect on the
4.3 In the product market for a normal good, a price decrease leads to a higher quantity demanded
4.4 From the demand side, the convenience and lower cost of using Uber compared to traditional taxi
service makes the household better off, and real income has increased. The income effect
