AP Economics:
Utility Maximization Homework – Complete notes on the following
Pages 138-141
Utility-maximizing rule:
Consumer Equilibrium:
As we look at table 7.1, the rational consumer must compare the extra utility from each product with its added cost
(that is, its price).
Example:
Pizza = 36 utils; $12
Movie = 24 utils; $6
Example #2
Taylor Swift Concert = 72 utils; $34 = 2.11 utils
Homecoming Tickets = 31 utils; $20 =1.55 utils
Which would you consume?
Which would students go to?
Algebraically for utility-maximizing rule:
Example:
8 utils of apples
-------------------$1 for apples
=
16 utils of oranges
-----------------------$2 for oranges
8=8
16 utils of oranges
-----------------------$1 for oranges
8 = 16 so we would switch, or substitute, from apples to oranges
Substitution Effect:
NOW:
8 utils of apples
-------------------$1 for apples
=
WHY?
Do we do this in real life?
AP Review:
Every day Mr. Macedonia spends his lunch money consuming chips, at $1 each, and hamburgers, at $2 each. At his
current level of consumption, Mr. Macedonia’s marginal utility of chips is 12 and his marginal utility of hamburgers is 18.
If he has already spent all of his lunch money, how should Mr. Macedonia change his consumption decision to maximize
utility?
A. He should make no changes; he is consuming the utility maximizing combination of chips and hamburgers
B. He should increase his chip consumption and decrease his hamburger consumption until the marginal utility per dollar
is equal for both
C. He should decrease his chip consumption and increase his hamburger consumption until the marginal utility per dollar
is equal for both
D. He should increase his chip consumption and decrease his hamburger consumption until the marginal utility is equal
for both
E. He should decrease his chip consumption and increase his hamburger consumption until the marginal utility is equal
for both
Refer to the above data. The value for Y is:
A. 25.
B. 30.
C. 40.
D. 45.
Refer to the above data. The value for X is:
A. 15.
B. 5.
C. 55.
D. 10.
The first Starbucks Coffee yields Mrs. Henry 18 units of utility and the second yields her an additional 12 units of utility.
Her total utility from three Starbucks Coffees is 38 units of utility. The marginal utility of the third Starbucks is:
A. 26 units of utility.
B. 6 units of utility.
C. 8 units of utility.
D. 38 units of utility.
Mr. Magill decides to buy a $75 ticket to a Pittsburgh symphony rather than a $50 ticket for a Steelers football game. We
can conclude that Mr. Magill:
A. is relatively unappreciative of sports.
B. obtains more marginal utility from the football game than from the symphony.
C. has a higher "marginal utility to price ratio" for the symphony than for the football game.
D. has recently attended several other football games.
What do the income effect, the substitution effect, and diminishing marginal utility have in common?
A. All are required to explain the utility-maximizing position of a consumer.
B. They are all empirically measurable.
C. They all help explain the upsloping supply curve.
D. They all help explain the downsloping demand curve.