Microeconomics
Problem Set #5
Utility
1. Suppose that the price of oranges is $1 per unit and the price of pencils is $70 per unit. In addition,
suppose that your income is $1900.
If you spend all your money on oranges, how many oranges can you buy?
2. The table below shows total utility for two products. Suppose that the price for product A is $5 and
the price for product B is $5.
Number of product A Total Utility for A Number of product B Total Utility for B
0 0 0 0
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Given this data, complete the table below:
Quantity
of A
Marginal
Utility for A
Marginal Utility
for A per dollar
Quantity
of B
Marginal
Utility for B
Marginal Utility
for B per dollar
0 0
1 1
2 2
3 3
4 4
5 5
Use the following information to answer questions 3 and 4:
The table below shows total utility for two products. Suppose that the price for product A is $5 and the
price for product B is $5.
Number of product A Total Utility for A Number of product B Total Utility for B
0 0 0 0
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Suppose that a person has $25.
3. How many units of product A should she buy to maximize her happiness given her budget constrain?
4. How many units of product B should she buy to maximize her happiness given her budget constrain?
5. Suppose that the original budget constraint is in blue and the consecutive budge constraint is in red.
As a result we can conclude that the
a. income decreased.
. income increased.
c. income stayed the same.
6. Suppose that the original budget constraint is in blue and the consecutive budget constraint is in red.
As a result we can conclude that
a. the price of apples has decreased.
. the price of envelopes has increased.
c. the price of envelopes has decreased.
d. there has been no change in the price for apples or envelopes.
e. the price of apples has increased.
7. Suppose that the original budget constraint is in blue and the consecutive budget constraint is in red.
As a result we can conclude that
a. the price of books has decreased.
. the price of pineapples has increased.
c. the price of pineapples has decreased.
d. there has been no change in the price for books or pineapples.
e. the price of books has increased.
8. The graph below shows indifference curves for product X and Y.
Which indifference curve provides the highest level of happiness or satisfaction?
a. Red curve
. Blue curve
c. Green curve
9. Suppose that the consumer is spending all of her income and is consuming at point A.
What should the consumer do in order to maximize her happiness?
a. Buy less of product X and more of product Y.
. Buy more of product X and less of product Y.
c. She is already maximizing her happiness and should not change her consumption bundle.
10. If the consumer spends all her income and tries to maximize her utility, which utility curve will she
end up on?
a. Black
. Blue
c. Green