Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of a cappuccino is $4 each and apple turnovers are $1 each
a. What is the amount of income allocated to cappuccino and apple turnover consumption?
b. What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers, or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.
a. Income = $56
b. Price of cappuccino / price of apple turnovers = $4 / $1 = 4
c. To buy a cappuccino, Eliza has to give up 4 apple turnovers.
d. MUcappuccinos / MUapple turnovers = Price of cappuccinos / Price of apple turnovers = $4 / $1 = 4
e. If the price of apple turnovers falls, the marginal utilities per dollar will not be equal. Specifically, MUcappuccinos / Price cappuccinos < MUapple turnovers / Price apple turnovers. Eliza can raise her total utility by buying more apple turnovers and fewer cappuccinos.
You might also like to view...
Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?
A. Increase the number of lumberjacks with chain saws and observe the change in output of cut trees B. Increase the number of workers on an assembly line and record the change in output C. Increase the number of data entry operators and computers and calculate the extra output. D. Check the number of workers before and after a given time period.
Which of the following is true of the long-run aggregate supply curve? a. It is vertical
b. The level of RGDP supplied does not change as the price level changes. c. The level of RGDP supplied changes with the levels of capital, land, labor, and technology available to the economy. d. all of the above
Economists generally agree that the most important tax in the U.S. economy is the
a. income tax. b. tax on labor. c. inheritance or death tax. d. tax on corporate profits.
One way to view the cost structure of monopolistic competition is to say that the cost of product differentiation is equal to
A. the sum of marginal cost and minimum average cost. B. the difference between marginal revenue and marginal cost. C. the sum of price and marginal cost. D. the difference between the cost of production for a monopolistically competitive firm in an open market and the minimum average total cost.