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Marginal Utility Quiz

This document contains three sections about marginal utility, budget constraints, and indifference curves. 1) The marginal utility table shows the change in total utility from consuming increasing quantities of a good. 2) The budget equation for two goods is defined, and the maximum quantity purchased for each good with an income of $100 is calculated. 3) Indifference curves I through IV are plotted on a graph with points for goods A and B. The marginal rate of substitution is computed for each curve.

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454 views1 page

Marginal Utility Quiz

This document contains three sections about marginal utility, budget constraints, and indifference curves. 1) The marginal utility table shows the change in total utility from consuming increasing quantities of a good. 2) The budget equation for two goods is defined, and the maximum quantity purchased for each good with an income of $100 is calculated. 3) Indifference curves I through IV are plotted on a graph with points for goods A and B. The marginal rate of substitution is computed for each curve.

Uploaded by

Haroun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

Marginal Utility

Quantity MU TU
1 15
2 12 ___
3 ___ 37
4 ___ 44
5 5 ___
6 ___ 53

Based on the table above. Answer the following questions.


A. Suppose you’re in a dessert on an extremely hot day and become quite thirsty. Luckily you come upon a
stand where they’re selling bottled waters. Compute the marginal utility from quantity 1 to 6.
B. Plot the Utility Functions
2. You have an income of 100 to spend on two commodities. Commodity A costs 10 per unit, and commodity
B costs 5 per unit.

a. Write down your budget equation.


b. If you spent all your income on commodity, how much could you buy?
c. If you spent all of your income on commodity A, how much could you buy?
d. Draw your budget line

3. Indifference Curve

POINTS I II III IV
A 2 26 3 24 5 24 7 24
B 3 12 4 16 5.5 18 8 18

C 4 9 5 12.6 6 16.6 9 14
D 5 7 6 10 7 14 10 12.6
E 6 6 7 8.8 8 12 11 11.4
F 7 5.4 8 8 9 10.8 12 10.6

A. Plot thee indifference curves I, II, III and IV on the same axes
B. Compute the marginal rate of substitution (MRS) on all indifference curves
C. If the price of goof y is 1 peso per unit while the price of good x is 2 pesos per unit and assuming that the
budget of the consumer rises from 12 and 16 pesos and then 20 pesos per time period, all spent on good x
and y.
D. Derive the income consumption curve

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