1. The basic rules of utility theory include ALL BUT:

1. _____ We try to maximize the utility of the basket of goods we buy.
2. _____ The more you have of something, the less its marginal value.
3. _____ People's utility values change over time.
4. ____ Humans are good at calculating numerical utility values.

2. We assign utility values using ALL BUT this factor:

1. _____ Government regulations
2. _____ Emotion
3. _____ Quantity
4. _____ Convenience

3. The grocery store near my house closed. That ____ increased / ____ decreased / _____ didn't affect my utility because

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4. The cost of a haircut at my favorite salon increased. That ____ increased / ____ decreased / _____ didn't affect my utility because_______________________________________________________

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5. The owner of my favorite salon painted it a nasty shade of green. That ____ increased / ____ decreased / _____ didn't affect my utility because__________________

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6. My bank added a third ATM machine. That ____ increased / ____ decreased / _____ didn't affect my utility because ______

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7. "Expected utility" is:

1. _____ The chance that something good will happen.
2. _____ The chance that something will happen times the utility of it happening.
3. _____ Either it happens or it doesn't.
4. _____ My pick of the favorite item I can choose from.

You've saved $6,000.You decide to treat yourself by spending $2,000 on something fun. You're thinking about going to a resort in Jamaica, a place you've never been. If it's real fun, you think it might be worth $4,000 in value to you. If it's just OK, it will be worth $2,000. If it's a bust it will be worth -$1,000 (a negative) because you'll be mad that you wasted your time and money. If you judge the odds as 50% real fun, 25% just OK and 25% a bust, should you book the trip?

8. _____ YES _____ NO

9. Show how you calculated your answer.

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You are put in charge of raising money for your school club, the Microeconomics Society. You decide to run a lottery. Lottery buyers pick a number between 1 and 1,000. If they pick the right number, they win $800.

10. What is the expected return of the lottery ticket? ____________

11. Show your calculation.

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12. A wise guy majoring in math says that he thinks your lottery is a bad deal. What other utility might you tell the wise guy he might receive that makes the lottery worth playing?

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13. I have five pairs of quality sneakers. My utility from wearing the sneakers depends upon two factors: (1) my ranking of my most to my least favorite, and (2) showing off to my friends that I have a lot of cool sneakers. The table below shows my estimated utilities. How should I plan out my sneaker wearing week to maximize my utility?

A. Adidas D. Nike Air Time worn Yeezy B. Nike Air C. Nike Jordan Royal E. Reebok that week Quantum Zoom Lebron 7 Toe Pump Court 1st 10 9 8 7 6 2nd 7.5 6.5 5.5 4.5 3.5 3rd 5 4 3 2 1 Sneaker - use the letters Utility Monday Tuesday Wednesday Thursday Friday Saturday Sunday Weekly utilityBudget $50 $100 $150 Hair It's OK Haircut Clothes Same old 38-8 New shirt New outfit Smell Me Body spray Getting there Walk 20 minutes Subway - 10 minutes Luft - 5 minutes Starter None Salad Shrimp cocktail Meal Hamburger 15 Lasagna 20 Steak 30 Drinks per glass Beer 5 Wine 10 Drink with umbrella in it Dessert None Ice cream Chocolate cake Tip Cheap OK. Big shot Getting home Walk 20 minutes Subway - 10 minutes Lyft - 5 minutes TOTAL 0