Sue consumes only two goods, food and clothing. The marginal utility of the last dollar she spends on food is 12, and the marginal utility of the last dollar she spends on clothing is 9. The price of food is $1.20/unit, and the price of clothing is $0.90/unit. Is Sue maximizing her utility?
Answer to relevant QuestionsNote the relationship between your answers in Problems 1 and 2. What accounts for this relationship?Mike spends all his income on tennis balls and basketball tickets. His demand curve for tennis balls is elastic. True or false: If the price of tennis balls rises, he consumes more tickets. Explain.a. For the demand curve P = 60 - 0.5Q, find the elasticity at P = 10.b. If the demand curve shifts parallel to the right, what happens to the elasticity at P = 10?Draw the Engel curves for the following goods: food, Hawaiian vacations, cashews, and Kmart brand sneakers ($4.99/pr).Explain why 1 plus the interest rate in the inter-temporal choice model is analogous to the relative price ratio in the consumer choice model discussed in Chapter 3.
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