Answer to Question #301788 in Microeconomics for Muna

Question

in 2021, Kante, a typical consumer, goes into a super market in central London, wehre he has four cups of coffee from the coffee shop section

a) Explain what we might observe about the toltal utility and marginal utility of the individual. how does your explanation illustrate the law of diminishing returns?

b) upon leaving he buys only orange juice and yoghurt for his family. Kante earns $100, orange juice is priced at $2 a carton and yoghurt is priced at $4 a tub. Draw Kante's budget constraint.

c) Now suppose that all prices increase by 10 per cent in 2022 and that Kante's salary increases by 10 per cent as well. Draw his new budget constraint

d) Explain your diagram in (C) above and indicate what account for the shift of Kante's budget constraint and the implication(s) of this shift in the budget line.

Answer 1

a)Marginal utility (derivative) decreases with increasing consumption, vanishes at maximum total utility, and then becomes negative, and the total utility, having reached its maximum value, begins to decrease.

the marginal utility of the first cup is higher than the second, the second is higher than the third

b) 2x+4y=100

c)2.2x+4.4y=110

d)

there is no shift in Kante's budget constraint, as both prices and income have risen equally