| Consumer Demand Theory |
| Utility and Indifference Curves |
| | | 1 | | Total Utility and Marginal Utility |
| | | | | From the total utility schedule below: |
| | | | | Derive marginal utility. |
| | | | | Graph TU and MU and indicate the saturation point with a STAR. |
| | | | | (Recall: TU is on the vertical axis and Qx is on the horizontal axis.) |
| | | | | Qx | TUx |
| | | | | 0 | 0 |
| | | | | 1 | 7 |
| | | | | 2 | 13 |
| | | | | 3 | 18 |
| | | | | 4 | 22 |
| | | | | 5 | 25 |
| | | | | 6 | 27 |
| | | | | 7 | 28 |
| | | | | 8 | 28 |
| | | | | 9 | 27 |
| | | 2 | | TU and MU |
| | | | | From the TU schedule below: |
| | | | | Derive the MU schedule. |
| | | | | Plot TU and MU and indicate the saturation point. |
| | | | | Insert trend lines and equations on each of curves. |
| | | | | Qy | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| | | | | TUy | 0 | 4 | 14 | 20 | 24 | 26 | 26 | 24 |
| | | | | Indifference Curves |
| | | 3 | | The following table gives points for 4 indifference curves for a consumer. |
| | | | | Use Excel to plot the 4 indifference curves. |
| | | | | List the properties of indifference curves. |
| | | | | 1 | | 2 | | 3 | | 4 |
| | | | | Qx | Qy | Qx | Qy | Qx | Qy | Qx | Qy |
| | | | | 2 | 13 | 3 | 12 | 5 | 12 | 7 | 12 |
| | | | | 3 | 6 | 4 | 8 | 5.5 | 9 | 8 | 9 |
| | | | | 4 | 4.5 | 5 | 6.3 | 6 | 8.3 | 9 | 7 |
| | | | | 5 | 3.5 | 6 | 5 | 7 | 7 | 10 | 6.3 |
| | | | | 6 | 3 | 7 | 4.4 | 8 | 6 | 11 | 5.7 |
| | | | | 7 | 2.7 | 8 | 4 | 9 | 5.4 | 12 | 5.3 |
| | | 4 | | Budget Line |
| | | | | Suppose the price of good Y is $1 and the price of good X is $2 per unit. Let income M = $16. |
| | | | | Write the budget line equation. |
| | | | | Graph the equation of your budget line. |
| | | | | Indicate the Qy and Qx at each of the axis intercepts of the budget line. |
| | | | | Indicate the slope of the budget line. |
| | | 5 | | Graphical Analysis |
| | | | | If the consumer's tastes and preferences are given by the indifferences from Q3 and the total income |
| | | | | and price constraints are given by the budget line Q5, then plot the equilibrium point for the consumer. |
| | | | | Consumer equilibrium: |
| | | | | This is where the slope of the indifference curve and slope of the budget line are equal. |
| | | 6 | | Budget Line |
| | | | | A consumer enjoys both music and spaghetti. |
| | | | | The consumer's income is $240 week. Music costs $12 |
| | | | | per unit, and spaghetti costs $8 per meal. |
| | | | | A. Graph the budget constraint faced by the consumer. |
| | | | | B. If the consumer wants all music, calculate how much music they can purchase. |
| | | | | C. If the consumer spends half their income on music and half their income on spaghetti, how much of each good |
| | | | | can this consumer buy? |
| | | | | D. Suppose that a hoiday bonus raises income temporarily to $360. Draw the new budget constraint. |
| | | | | E. Indicate how many music units and spahetti dinners the consumer can buy with an income of $360. |
| | | 7 | | Consumer Choice Theory |
| | | | | Suppose that a consumer consumes only about coffee and bagels. |
| | | | | This consumer's utility fucntion is U =C*B, where C = number of cups of coffee daily, |
| | | | | B= number of bagels this consumer eats daily. The price of coffee is $3, and the price of bagels is $1.50. |
| | | | | The budget is $6 daily to be used for coffee and bagels. |
| | | | | A. What is the objective function? |
| | | | | B. What is the constraint? |
| | | 8 | | Bundle | Qty X | Qty Y |
| | | | | A | 2 | 2 |
| | | | | B | 10 | 0 |
| | | | | C | 1 | 5 |
| | | | | D | 3 | 2 |
| | | | | E | 2 | 3 |
| | | | | D. Graph the utility function, U =X*Y. |
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ECOUtilityandIndifferenceCurvesConsumerTheory8Q2019.xlsx
