Jerry has $12 a week to spend on yogurt and magazines. The price of yogurt is $2, and the price of a
magazine is $4.
1. List the combinations of yogurt and magazines
that Jerry can afford. Draw a graph of Jerry’s
budget line with the quantity of magazines plotted
on the x-axis.
2. Describe how Jerry’s consumption possibilities
change if, other things remaining the same, (i) the
price of a magazine falls and (ii) Jerry’s income
increases.
Use the following data to work Problems 3 to 9.
Max enjoys windsurfing and snorkeling. Max has $35 a
day to spend, and he can spend as much time as he
likes on his leisure pursuits. The price of renting equipment for windsurfing is $10 an hour and for snorkeling
is $5 an hour. The table shows the total utility Max gets
from each activity.
Total Total
Hours utility from utility from
per day windsurfing snorkeling
1 120 40
2 220 76
3 300 106
4 360 128
5 396 140
6 412 150
7 422 158
3. Calculate Max’s marginal utility from windsurfing at each number of hours per day. Does Max’s
marginal utility from windsurfing obey the principle of diminishing marginal utility?
4. Calculate Max’s marginal utility from snorkeling
at each number of hours per day. Does Max’s
marginal utility from snorkeling obey the principle of diminishing marginal utility?
5. Which does Max enjoy more: his 6th hour of
windsurfing or his 6th hour of snorkeling?
Utility-Maximizing Choice (Study Plan 8.2)
6. Make a table that shows the various combinations
of hours spent windsurfing and snorkeling that
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