Chapter 7 Exercises Essay

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Solutions to End-of-Chapter Exercises

Chapter 7 [22]

Section 7.1 [22.1]: Total and Marginal Utility 1.1 consumption, total utility (measured in 'utils') 1.2 3, less, greater 1.3 up arrow, down arrow 1.4 down arrow, down arrow

Section 7.2 [22.2]: Consumer Choice 2.1 down arrow, up arrow, up arrow 2.2 up arrow, down arrow 2.3 up arrow, down arrow, down arrow, up arrow 2.4 $200/violin 2.5 decrease, increase 2.6 12, increase, decrease 2.7 marginal utility per dollar spent on movies, marginal utility per dollar spent on books 2.8 down arrow, down arrow, up arrow 2.9 Table Entries: 4, 5 a. beverage B b. switch to A 2.10 a. b. Channels – 12.5, 11, 10, 9, 8, 7 Games – 6, 8, 10 12, 18, 24 3 channels and 36 games would be chosen.
Special note/errata
If you are using the first printing of this book, the table that accompanies Exercise 2.10b looks like this:

Quantity Marginal Utility Marginal Utility per Dollar
Channels
Games
Channels
Games
Channels:
Price = $4
Games
Price = $1
1
44
6
50

2
40
8
44

3
36
10
40

4
32
12
36

5
28
18
32

6
24
24
28

When assigning Exercise 2.10b, under the heading of “Marginal Utility,” switch the numbers that appear under Channels and Games so the table looks like this:

Quantity Marginal Utility Marginal Utility per Dollar
Channels
Games
Channels
Games
Channels:
Price = $4
Games
Price = $1
1
44
50
6

2
40
44
8

3
36
40
10

4
32
36
12

5
28
32
18

6
24
28
24

c.
The switch makes you worse off. 2.11 Rides – 25, 21, 18, 14 Games – 10, 14, 18, 26 3 rides and 24 games would be chosen.

Special note/errata. If you are using the first printing of this book, the table that accompanies Exercise 2.11 looks like this:

Quantity Marginal Utility Marginal Utility per Dollar

Rides
Games
Rides
Games
Rides:
Price =$2
Games
Price = $1

1
28
10
50

2
26
14
42

3
24
18
36

4
22
26
26

When assigning Exercise 2.11, under the heading of “Marginal Utility,” switch the numbers that appear under Rides and Games so the table looks like this:

Quantity Marginal Utility Marginal Utility per Dollar

Rides
Games
Rides
Games
Rides:
Price =$2
Games
Price = $1

1
28
50
10

2
26
42
14

3
24
36
18

4
22
26
26

2.12 a. What is your MU of food? What is your MU of housing? b. MU(food) is three times greater than MU(housing). 2.13 a. total utility before and after consumption, hence marginal utilities b. MU(cookies) > (1/3)*MU(punch)

Section 7.3 [22.3]: The Individual Demand Curve 3.1 arrow down, arrow down 3.2 price, quantity demanded 3.3 arrow up, arrow up 3.4 arrow down, arrow up 3.5 $38, decrease, MU/P for books, MU/P for movies 3.6 a.
10
b. $1200 c. 6 utils/dollar, 10 utils/dollar 3.7 Quantity of books – 28, 26, 24, 22, 20 18, 16 MU/P of movies – 27, 25, 23, 21, 19, 17, 15 MU/P of books – 3, 5, 7, 9, 11, 13, 15 7 movies and 16 books would be chosen. 3.8 a. Johnny is maximizing utility, since MU/P’s are equal. b. No. Johnny should buy more high quality apples and fewer low quality apples. c. More high quality apples will be sold outside the apple growing region.

Section 7.4 [22.4]: Applications of Consumer Choice 4.1 all prices, income 4.2 marginal revenue of radio ads, price of radio ads, marginal revenue of TV ads, price of TV ads 4.3 3, 3, is 4.4 increase, decrease 4.5 a. b.
The budget line is exactly the same as in 4.5a above. c. Utility level stays the same, since prices and incomes decreased proportionately. 4.6 a. Advertise in C, F and H. The total benefit
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