Question

1. Suppose Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?

1. The price of tea is six times the price of crumpets
2. The price of crumpets is four times the price of tea
3. The price of tea and crumpets are equal
4. The price of tea is four times the price of crumpets

Pints of                        Marginal Utility          Pints of            Marginal Utility

Blueberries                  of Blueberries             Strawberries    of Strawberries

0                                    0                            8                            2

1                                    24                          6                            4

2                                    20                          4                            6

3                                    16                          2                            8

4                                    12                          0                            0

2. Blueberries cost $4 per pint, while strawberries cost $2 per pint. Pedro has $16 to spend on blueberries and strawberries. The above table depicts combinations of blueberries and strawberries that he can buy with his $16. Using the above information, figure out the utility-maximizing combination of blueberries and strawberries.

1. four pints of blueberries and zero pints of strawberries
2. three pints of blueberries and two pints of strawberries
3. two pints of blueberries and four pints of strawberries
4. one pint of blueberries and six pints of strawberries
5. zero pints of blueberries and eight pints of strawberries

3. Suppose Zoe uses her income to buy beer and potato chips. Zoe’s marginal utility of consuming beer is 20 utils and the marginal utility of consuming potato chips is 10 utils. The price of beer is $4 and the price of potato chips is $1. Zoe will maximize her utility by
   1. doing nothing
   2. buying more beer and less potato chips
   3. buying less beer and more potato chips
   4. buying less of both goods

Quantity demanded                      Price per Pound

1. 1 $8
2. 2    6
3. 3    4

4. The above exhibit shows Reggie’s demand for apples. If there are 100 people in this economy, and each has the same demand for apples as Reggie, what is the total quantity demanded in the market for apples when price is $6 per pound.

1. 600 pounds of apples
2. 200 pounds of apples
3. the average of all quantity demanded
4. the average of all prices

5. The income effect of a price change of e-Books is the effect on consumption changes due to a change in:

1. income when all prices change in the same proportion
2. purchasing power caused by a change in the price of a good
3. income caused by a change in the price of labor
4. income sufficient to offset the effect of a price change

Answer 1

wilily is maximized when Mutea Peter_ 04_MUL-Bv MUG MU compete Prumpeter 24 - f 4 = b =) Pata correct answer is d. The price of hea u four times price of Crum pet Po = $4 Ps = $2. - PR - 2 6 Iso 2. pints of D 3 2 2 At most he can consume $16 - 4 Blueberries if he obenda $4 all his money on Blueberries q he spends all his money on he can buy $16 - 8 pinte of strawberries strawberries 210 we 5 the a is can check each the ratio of equal to PR ic option Mu 2. and at figure that out t combination a) 4 pisits of bluebewiles and o pinits of Drawberrei - MUR 12 MUSEOA - MUR =0 we cancel out this option Mus. We also cancel out opsione LA combination that gives MUR = PB = 2 is l Mus Po - 3 pints blueberies and 2 pints of a cawberie The 'to al costa 3x4 + 2X 2 = 12+4= $160M . -

Thus correct answer u b. three pinte of bluebewus straw beveies and 2 pints of moutard MUB - 20 MU.pc = 10 PR = 44 prate MUR 20=2 PB = 4 - 4 MUpc_ 10_1 PPI If zoe buy less been the MUB will post and ů she bup more of poruta - chips, the a marginal marginal Wilily of porwa chips will fall Both of these will increase the raio . MNB She Millac should keep doing this Hill MUB becomes equal to 4. MUPC This correct answer in more b)_ buyt Miroscaless beer and Humpolwa_chips, = - 4. When price is $6, Reggie demands 2 pounds of apples. Y 100 people has same demand as Reggies toral market demand at $6 per pound in 2X100 pl pounds ic 200 pounds. 200 pounds of apples 5. b. change in purchasing power caused by a change in the price of a good