1.Based on Figure 22.1 on page 487, fill in the blanks in the following table to identify different points on the consumer’s budget line.
2. In Figure 22.1 on page 487, suppose the price of movies increases to $9. Draw a new budget line. The horizontal intercept of the budget line is and the
slope of the budget line is
.
3. In Figure 22.2 on page 488, if the total utility from seven movies is 294 utils, the marginal utility of the seventh movie is
utils, which is
than the marginal utility of the sixth movie.
4. As the consumption of a product increases, utility
(increases/decreases) at a
(increasing/decreasing/constant) rate, so the marginal utility curve is
sloped. This illustrates the law of
.
5. In Figure 22.3 on page 489, suppose the price of movies decreases to $2. The marginal utility per dollar of the sixth movie is
utils.
6. Suppose Carolyn is on a fixed monthly income of $200 to spend on food while she is in medical school. Further, suppose the price of a single-serving macaroni and cheese is $4 and the price of a baguette is $2. Is a consumption combination of 20 macaroni and cheeses and 60 baguettes possible given these prices and income? Justify your answer
7. Suppose that Joyce has a monthly fixed income of $2,000 and has allocated $100 of this income to buy shoes and pants. A decrease in the price for shoes but not in the price for pants will change the
(slope/intercept) of the budget line.
8. The conditions for utility maximization are
a.
.
b.
.
9. Suppose a consumer has a fixed amount to spend each week on iTunes songs ($1 each) and movies ($6 each). For the combination she chose this week, the marginal utility of movies is 30 and the marginal utility of songs is 3. For next week she should
(increase/decrease) the number of songs and
(increase/decrease) the number of movies.
10. Brain imaging provides evidence for the law of
utility. (Based on Application 1 on page 493.)