THE RATIONAL CONSUMER
Chapter 10: Problems 1, 2, 7, and 14 on pages 250-252
Chapter 10 / THE RATIONAL CONSUMER
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1.For each of the following situations, decide(and explain) whether Al hasincreasing, constant, or diminishingmarginal utility.
a.The more economics classes Al takes, the more he enjoysthe subject. And the more classes he takes, the easier eachone gets, making him enjoy each additional class evenmore than the one before.
b.Al likes loud music. In fact, according to him, “the louder,the better.” Each time he turns the volume up a notch, headds 5 utils to his total utility.
c.Al enjoys watching old episodes of the sitcom Friends. Heclaims that old episodes are always funny, but he doesadmit that the more he sees an episode, the less funny itgets.
d.Al loves toasted marshmallows. The more he eats, however,the fuller he gets and the less he enjoys each additionalmarshmallow. And there is a point at which he becomessatiated: beyond that point, more marshmallows actuallymake him feel worse rather than better.
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2.Use the concept of marginal utility to explain the following:
Newspaper vending machines are designed so that once youhave paid for one paper, you could take more than one paperat a time. But soda vending machines, once you have paid forone soda, dispense only one soda at a time.
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7.For each of the following situations, decide whether thebundle Lakshani is thinking about consuming is optimal ornot. If it is not optimal, how could Lakshani improve her overalllevel of utility? That is, determine which goodshe shouldspend more on and which good should she spend less on(2-part answers)
a. Lakshani has $200 to spend on sneakers and sweaters.Sneakers cost $50 per pair, and sweaters cost $20 each.She is thinking about buying 2 pairs of sneakers and 5sweaters. She tells her friend that the additional utilityshe would get from the second pair of sneakers is thesame as the additional utility she would get from thefifth sweater.
b. Lakshani has $5 to spend on pens and pencils. Each pencosts $0.50 and each pencil costs $0.10. She is thinkingabout buying 6 pens and 20 pencils. The last pen would addfive times as much to her total utility as the last pencil.
c. Lakshani has $50 per season to spend on tickets to footballgames and tickets to soccer games. Each football ticketcosts $10 and each soccer ticket costs $5. She isthinking about buying 3 football tickets and 2 soccer tickets. Her marginal utility from the third football ticket istwice as much as her marginal utility from the second soccerticket.
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14. Inflation increases the prices of all goods by 20%. At the sametime, Ina’s income increases from $50,000 to $55,000. Compare the situation after both of these changes have happenedwith the situation before any of these changes havehappened.
a. After these changes, has Ina’s budget line become steeper,less steep, or equally as steep compared to before?
b. After these changes, has Ina’s budget line shifted outward,inward, or not at all, compared to before?