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Chapter 6: Q.5 (page 151)
Who determines how much utility an individual will receive from consuming a good?
Individuals are the only ones who can assess their own utility. In general, better total utility is associated with more consumption of a good.
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1. Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a round-trip cost of \(2 in gasoline money. He has a total of \)10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in Table 6.6, figure out the points on Jeremy鈥檚 consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point.
Is it possible for the total utility to increase while marginal utility diminishes? Explain.
A consumer has income of \(3,000. Wine costs \)3 per glass, and cheese costs $6 per pound. Draw the consumer鈥檚 budget constraint. What is the slope of this budget constraint?
The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called 鈥渃losing the Washington Monument.鈥� When an agency faces the unwelcome prospect of a budget cut, it may decide to close a high-visibility attraction enjoyed by many people (like the Washington Monument). Explain in terms of diminishing marginal utility why the Washington Monument strategy is so misleading. Hint: If you are really trying to make the best of a budget cut, should you cut the items in your budget with the highest marginal utility or the lowest marginal utility? Does the Washington Monument strategy cut the items with the highest marginal utility or the lowest marginal utility?
Homer buys pizza for \(10 and Pepsi for \)2. He has income of \(100. His budget constraint will shift inward if.
a. the price of pizza rises to \)12.
b. the price of Pepsi falls to \(1
c. his income rises to \)150
d. the price of pizza, the price of Pepsi and his income all rise by 50 percent.
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