Consumer Theory and Dancing Classes

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Tutorial 4a: Consumer Behavior

Q1What is the difference between marginal and total utility?

Q2Fill in the following table on the total and marginal utilities of a certain product A. Use your results to answer the following questions.

Units of product A| Total utility| Marginal utility|
0| 0| |
1| 20| _____|
2| 35| _____|
3| _____| 10|
4| _____| 5|
5| _____| 0|
6| 45| _____|
7| 35| _____|
8| _____| –15|

(a)Graph both the total utility and marginal utility curves together on the same graph. (b)Explain the shape of both of the curves.
(c)Identify the point where utility is maximized on both curves. Discuss the reasoning behind each value.

Q3Show an indifference curve by using the data in the table below and indicating X on horizontal axis and Y on vertical axis. (3m)

Combinations| Units of X| Units of Y|
A| 1| 6|
B| 2| 5|
C| 4| 3|
D| 8| 2|

The following table shows the information about marginal utility for X and Y.

Units| MUx| MUy|
1| 10| 6|
2| 8| 5|
3| 2| 4|
4| 2| 3|
5| 1| 3|

(a)The price of X is $2 per unit and the price of Y is $4 per unit, calculate the marginal utility per dollar for X and Y. (2m)
(b) How many units of X and Y will the consumer purchase, given an income of $20? (2m)
(c) Add one more indifference curve on your diagram to Q3 by using the following figures: (2m)

Combinations| Units of X| Units of Y|
A| 2| 7|
B| 3| 6|
C| 5| 4|
D| 9| 3|

(d)Which indifference curve do you think will be most preferable? Explain. (2m)
(e)Given an income of $26, which combination will be the consumer’s potential choice? Why? (3m)

Tutorial 4b: Consumer Behavior

Q1Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts....
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