Chapter 10:
1. Why can we not say that two people who chose to buy the same quantity of a good at the same price
have the same marginal utility?
Answer: We cannot interpersonally compare utility between people, so even if the
2. bout their
marginal utility? What do we know about their total utility?
Answer: We know that their marginal utility for the next bite was negative that their total
3. Why would you not continue to consume a good in the range where there was diminishing total utility?
Answer: Since you would have to pay for additional units, you would be unwilling to do so
4. The following table shows
marginal utility that Rene derives from eating escargot.
Escargot
Per Day Total Utility Marginal Utility
1 10 ________
2 18 ________
3 24 ________
4 28 ________
5 30 ________
6 30 ________
Answer:
Escargot
5.
Answer:
6.
how do you determine how many helpings to consume? Should you continue eating until your food
consumption has yielded $9.95 worth of satisfaction? What happens to the marginal utility from
successive helpings as consumption increases?
Answer: According to the rule of rational choice, a diner should continue eating as long
7. Suppose you currently spend your weekly income on movies and video games such that the marginal
utility per dollar spent on each activity is equal. If the price of a movie ticket rises, how will you reallocate
your fixed income between the two activities? Why?
Answer: If the price of a movie ticket increases, then the satisfaction per dollar derived
8. Brandy spends her entire weekly budget of $20 on soda and pizza. A can of soda and a slice of pizza
are priced at $1 and $2, respec
and 4 utils, respectively. What advice could you give Brandy to help her increase her overall satisfaction
from the consumption of soda and pizza? What will happen to the marginal utility per dollar from soda
consumption if Brandy follows your advice? What will happen to the marginal utility per dollar from pizza
consumption?
Answer: The marginal utility per dollar derived from soda equals 6 utils per dollar, while
9.
marginal utility would you receive? How much marginal utility would you receive from a pizza that was
delivered immediately after you finished a five-course Thanksgiving dinner? Where would you be more
likely to eat more pizza in a single setting, at home or at a crowded party (particularly if you are not sure
how many pizzas have been ordered)? Use marginal utility analysis to answer the last question.
Answer: You are likely to receive more consumer surplus from pizza after a late-night
10. The Consumer Price Index (CPI) measures changes in the cost of living by comparing the cost of
buying a certain bundle of goods and services over time. The quantities of each commodity remain the
same from year to year but their prices change, so changes in the index reflect weighted average of
changes in the prices of goods and services. Explain how the behavior assumed in the CPI conflicts with
the way consumers actually respond to price changes. Do you think the CPI overestimates or
underestimates the effect of price changes on consumers?
Answer: Consumers allocate their incomes across goods and services by comparing the
11. A restaurant offers a free dinner with a 6 pound steak, potatoes, and all the trimmings, but only if the
patron can eat it all. Otherwise, they must pay $80 for the steak dinner. What does this say about the
likely marginal utility most people expect to get from the 6th pound of steak during that dinner?
Answer: Since the restaurant would be effectively paying you $80 to eat that last pound of
12. How does the water-diamond paradox explain why there is such a poor correlation between the price
of a good and the total utility a person receives from it?
13. Explain the income and substitution effects of a price reduction of a good.
Answer: The substitution effect reflects the lowered relative price of the good compared to
multiple papers, and food vending machines, where you can only get one of the item purchased. Would
you expect the policy used by newspaper racks to change if each newspaper routinely included hundreds
of dollars of valuable coupons?
Answer: For most people, the marginal utility of added newspapers falls very rapidly after