Analysis and Mathematical Modeling of Consumer Behavior
hapter 8 Homework (EXPLAIN YOUR ANSWERS)
One point questions:
1. a) How can time be incorporated into the theory of consumer behavior (think opportunity costs)?
Time also has a value, so it also should be considered in decision making and utility maximization. The total price of a product should also include the time spent in consuming the product. (how much you make per hour). Usually when people consider their time, their consumer behavior appears to be more rationale. b) Explain the following comment: “Want to make millions of dollars? Devise a product that saves Americans lots of time.” Time is money. The point of this expression is for a person who can make so much per hour, every hour spent not working is so much money not made. Americans value productivity and time. So a time-saving device would free the individual up to earn more income. 2. Many apartment-complex owners are installing water meters for each individual apartment and billing the occupants according to the amount of water they use. This is in contrast to the former procedure of having a central meter for the entire complex and dividing up the water expense as part of the rent. Where individual meters have been installed, water usage has declined 10 to 40 percent depending on the number of individual apartments. Assuming a 20 unit apartment building, explain this drop, referring to price and marginal utility.
In the 20 apartment complex, each apartment would be billed for one-twentieth
of the cost of the water. The price of a single liter is equal to one-twentieth the amount charged by water department. The low price per liter encourages the use of water until
the marginal utility of an additional liter is low. When the tenants pay separately
for their own water, they consider the full market price of water when making consumption choices.
People living in an apartment complex who pay a share of the water expense have little incentive to conserve.
One point questions:
1. a) How can time be incorporated into the theory of consumer behavior (think opportunity costs)?
Time also has a value, so it also should be considered in decision making and utility maximization. The total price of a product should also include the time spent in consuming the product. (how much you make per hour). Usually when people consider their time, their consumer behavior appears to be more rationale. b) Explain the following comment: “Want to make millions of dollars? Devise a product that saves Americans lots of time.” Time is money. The point of this expression is for a person who can make so much per hour, every hour spent not working is so much money not made. Americans value productivity and time. So a time-saving device would free the individual up to earn more income. 2. Many apartment-complex owners are installing water meters for each individual apartment and billing the occupants according to the amount of water they use. This is in contrast to the former procedure of having a central meter for the entire complex and dividing up the water expense as part of the rent. Where individual meters have been installed, water usage has declined 10 to 40 percent depending on the number of individual apartments. Assuming a 20 unit apartment building, explain this drop, referring to price and marginal utility.
In the 20 apartment complex, each apartment would be billed for one-twentieth
of the cost of the water. The price of a single liter is equal to one-twentieth the amount charged by water department. The low price per liter encourages the use of water until
the marginal utility of an additional liter is low. When the tenants pay separately
for their own water, they consider the full market price of water when making consumption choices.
People living in an apartment complex who pay a share of the water expense have little incentive to conserve.