CHAPTER 19 ECON 101 Inclass Assignment 1. Fill in the blanks in the following table. The price of a cup of coffee is $2. Cups of Coffee TU MU MU/P 0 0 15 1 2 27 3 37 8 4 6 5 5 6 LE 55 7 8 -5 2. The table below presents Kent's marginal utility per dollar for books and pizzas. Books cost $16 each and pizzas cost $8 each. Books 1 2 3 4 S 6 6 7 MU/P 30 26 24.5 20 17.5 10 5.5 Pizzas 1 2 3 4 S 6 7 MU/P 25 24.5 20 16 11 8 2 a. How many books and pizzas will Kent purchase if he has $88 to spend? b. How much utility will Kent receive from his purchases in a? c. The price of books rises to $20 a book. How do your answers to a and h change? 3. State whether the consumer in each of the following situations is maximizing utility. If she is not, state what adjustments she should make to maximize utility. a. Selma consumes 2 sandwiches and 3 Coca-colas. The last sandwich gives Selma 25 units of utility and the last Coca-Cola gives her 5 units of utility. Sandwiches cost $5 apiece and Coca-colas cost $1 apiece. b. Kristin cals 2 Twix bars and 1 bag of M&Ms. The last Twix har gives Kristin 10 units of utility and the last bag of M&Ms gives her 30 units of utility. Twix bars cost $0.50 apiece and one bag of M&Ms costs $0.75. c. Jackie reads another chapter in her novel that gives her 400 units of utility at a cost of 30 minutes of her time and another chapter in her economics text that gives her 1,500 units of utility at a cost of l ' hours of her time. 4. Bill gets four units of utility from eating a fourth pear and six units of utility from eating a second grapefruit. The price of pears is $1.00 apiece and the price of grapefruit is $1.50 apiece. a. Is Bill maximizing total utility? Brietly explain your answer. b. If the price of grapefruit falls to $1.00, what will Bill do to maximize utility? c. How does this exercise demonstrate the relationship between the principle of rational choice and the law of demand? 5. Zachary has $5 10 spend on iwo goods: video games and hot dogs. Hot dogs cost $1 apiece while video games cost 50 cents apiccc. a. Draw a graph of Zachary's budget constraint, placing video games on the y axis. b. Suppose the price of hot dogs falls to 50 cents apiece. Draw the new budget constraint. c. Suppose Zachary now has $8 to spend. Draw the new budget constraint using the prices from b. 6. Zachary's indifference curves are shown in the following graph. Determine on which indifference curve Zachary will be given the budget constraints and prices in a, b, and c from question 5. Video games ONWAUIO Il 1 2 3 4 5 6 7 8 9 10 Hol dogs a. Given a choice, which budget constraint would Zachary prefer most? Least? b. What is the marginal rate of substitution of hot dogs for video games at each of the combinations chosen with budget constraints a, b, and c in question 1? Table 1 Quantity of Total Utility Quantity of Soup (cups) Sandwiches Total Utility 40 45 2 60 2 75 3 72 102 4 82 4 120 S 88 S 135 6 90 6 145 Table 1 above shows Keira's utility from soup and sandwiches. The price of soup is S2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. 3 7) Refer to Table 1. What is Keira's marginal utility per dollar spent on the third cup of soup? A) 72 units of utility B) 36 units of utility C) 12 units of utility D) 6 units of utility 8) Refer to Table I. If Keira maximizes her utility, how many units of each good should she buy? A) 1 cup of soup and 5 sandwiches B) 3 cups of soup and 4 sandwiches C) 6 cups of soup and 2 sandwiches D) 4 cups of soup and 3.5 sandwiches