Answer to Question #249370 in Microeconomics for Ndanu

Question

James Walker allocates his budget of $ 24 per week among three goods, A, B and C. Use the following tables of quantities (Q) and total utilities (TU) to answer the questions below:

QA TUA QS TUS QC TUC

1 50 1 75 1 25

2 90 2 135 2 45

3 120 3 175 3 60

4 140 4 205 4 70

5 155 5 225 5 77

i. If the price of A is $2, the price of B is $3, and the price of C is $ 1, how much of each does James Walker purchase in equilibrium?

ii. If the price of A rises to $ 4 while other prices and James Walker budget remain constant, how much of each does he purchase in equilibrium?

iii. Use the information from part (i) and part (ii) to draw the demand curve for good A. Be sure to indicate the quantity demanded for each point on the curve.

Answer 1

a.Four unit each of goods A,B and C. the per dollar marginal utility is 10 for each good, and total spending equals $24 ($8 on A,$12 on B and $4 on C).

To get marginal utility we use the formula

Marginal Utility = Change In Total Utility /Change In Units

b.Two units of A with four unit of goods B and C. The per dollar marginal utility is ten for each good, total spending equals $24 ($8 on A, $12 on B and $4 on C).

c.