consumer choice. would you see the movie three times? notice that the total benefit is more than the...

Consumer Choice

Would you see the movie three times?Notice that the total benefit is more than the total cost but you would NOT watch

the movie the 3rd time.

Thinking at the Margin# Times

Watching Movie

Marginal Utility

Price

1st $30 $10

2nd $15 $10

3rd $5 $10

Total $50 $30

Side Note:

Util : a unit of pleasure, happiness, satisfaction, or benefit gained from consuming a good or service

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils? (A) The marginal utility of the first unit is 20. (B) The marginal utility of the second unit is 80. (C) The marginal utility of the second unit is 120. (D) The total utility of consuming two units is 120. (E) The total utility of consuming one unit is greater than the total utility of consuming two units.

Calculate Marginal Utility

# of Slices of Pizza

Total Utility (in dollars)

Marginal Utility/Benefit

0 0

1 8

2 14

3 19

4 23

5 25

6 26

7 26

8 24

How many pizzas

would you buy if the price per slice was

$2?

6

Calculate Marginal Utility

# of Slices of Pizza

Total Utility (in dollars)

Marginal Utility/Benefit

0 0 0

1 8 8

2 14 6

3 19 5

4 23 4

5 25 2

6 26 1

7 26 0

8 24 -2

How many pizzas

would you buy if the price per slice was

$2?

7

You will continue to consume until

Marginal Benefit = Marginal Cost

You plan to take a vacation and want to maximize your utility. Based on the info

below, which should you choose?

Destination Marginal Utility(In Utils)

Price

Tahiti 3000 $3,000

Chicago 1000 $500

Marginal Utility Per Dollar

1 Util

2 Utils

8

CONSUMER BEHAVIOR

CONSUMER BEHAVIOR

You plan to take a vacation and want to maximize your utility. Based on the info

below, which should you choose?

Destination Marginal Utility(In Utils)

Price

Tahiti 3000 $3,000

Chicago 1000 $500

Marginal Utility Per Dollar

1 Util

2 Utils

Calculating Marginal Utility Per Dollar allows you to compare products with different

prices.

9

If you only have $25, what combination of movies and games of bowling maximizes

your utility?

# Times Going

Marginal Utility

(Movies)

MU/P(Price =$10)

Marginal Utility

(Bowling)

MU/P(Price =$5)

1st 30 10

2nd 20 5

3rd 10 2

4th 5 1

$5Utility Maximization$10

If you only have $25, what combination of movies and go carts maximizes your

utility?

# Times Going

Marginal Utility

(Movies)

MU/P(Price =$10)

Marginal Utility

(Bowling)

MU/P(Price =$5)

1st 30 3 10 2

2nd 20 2 5 1

3rd 10 1 2 .40

4th 5 .50 1 .20

$5Utility Maximization$10

Utility Maximizing Rule

Spend money on each good until the marginal utility per dollar – “bang for your buck” – of each good is equal

MUx = MUy

12

Px Py

To maximize utility, a consumer with a fixed budget will purchase quantities of goods so that the ratios of the marginal utility of each good to its A) total utility are the greatest B) total utility are the same C) price are the greatest D) price are equal to one E) price are equal

Tony spends all of his weekly allowance to buy only two goods: soda and apples. According to the table above, if his preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct?

(A) Tony is maximizing his utility. (B) Tony can buy more apples and less soda to maximize his utility. (C) Tony can buy more soda and fewer apples to maximize his utility. (D) Tony can buy more apples and the same amount of soda to maximize his utility. (E) Tony can buy more soda and the same amount of apples to maximize his utility.

Ethan is currently spending his entire lunch budget on 4 burritos and 3 cans of Mountain Dew. At his current level of consumption, Ethan’s marginal utility for a can of Mountain Dew is 5 utils and his marginal utility for burritos is 10 utils. In order to maximize his total utility, Ethan should

(A) consume more Mountain Dew and fewer burritos regardless of the prices(B) consume more burritos and less Mountain Dew regardless of the prices(C) maintain his current level of consumption of Mountain Dew and burritos regardless of the prices(D) maintain his current level of consumption if the price of a can of Mountain Dew is $1 and the price of a burrito is $2(E) maintain his current level of consumption if the price of a can of Mountain Dew is $2 and the price of a burrito is $1

If a good is available free of charge, an individual will consume it until

(A) marginal utility is zero(B) average utility is zero(C) total utility is zero(D) marginal utility equals average utility(E) marginal utility equals total utility

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