Answered: Shoes Michelle 12 Marginal Utility of…

Business

Economics

Shoes Michelle 12 Marginal Utility of Marginal Utility of Coffee 6 Renee 6 6 Douglas 6 3 Paul 3 6 Shannon 12 3

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 4SQP

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Question

100%

3) i. The marginal utility for shoes and coffee is given below for five individuals. A pair of shoes costs $2, and a cup of coffee costs $1.

a. Which of these consumers are optimising over their choices? Explain

b. For those who are not, how should they adjust their spending? Explain

ii. “Pasta is Miguel’s favourite meal therefore the law of diminishing marginal utility does not apply”. Do you agree with this statement?

iii. It is known that the indifference curve is convex. What does this tell you about the relationship between the goods?

iv. The income effect and the substitution effect work in the same direction for a normal good. Explain how this differs for an inferior good.

Shoes
Michelle
12
Marginal Utility of
Marginal Utility of
Coffee
6
Renee
6
6
Douglas
6
3
Paul
3
6
Shannon
12
3

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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