Student Code _________________
Teacher Code _________________
Part 1
a.
The table below shows Wiremu’s utility for coke.
- Complete the table by writing the missing number in the space provided in the shaded boxes
Table 1 – Wiremu’s utility for coke
Quantity
b.
TU (cents)
MU (cents)
0
0
---
1
200
_200__
2
_350__
150
3
450
_100__
4
_500__
50
The table below shows Wiremu’s demand for coke.
Use the table you completed in question 1 to help you complete Wiremu’s demand schedule for coke by
writing the missing number in the space provided in the shaded boxes
Table 2 - Wiremu’s Demand for Coke
Price ($)
Quantity (units)
3.00
_0__
2.00
_1__
1.00
c.
_3__
On the axes below draw Wiremu’s demand curve coke
- Remember to label your curve with a “d”
Graph 1 - Wiremu’s Demand for Coke
Price ($)
3.00
2.00
d
1.00
0
1
2
3
Quantity
(units)
1
d.
Provide a detailed explanation about how marginal utility causes Wiremu’s demand curve for coke to
slope downwards to the right
- refer to specific data to support your explanation
Marginal utility (MU) is the extra satisfaction a consumer gains from consuming one more of a product
Table 1 shows that as Wiremu’s consumption of coke increases his MU decreases. For example the
MU of 1 unit is $2 and the MU of the 3rd is $1.
If we assume Wiremu is a rational consumer he will only buy coke if the MU he receives is greater than
(or equal) to the price he has to pay for that extra unit.
As a result Wiremu’s demand curve for coke (in Graph 1) is downward sloping to the right. Wiremu will
only buy larger quantities of coke if the price falls to match the lower MU. This can be seen on Graph 1
where Wiremu won’t buy any coke at $3 as this is above his MU for the first unit and also by the fact
that he won’t buy 3 units unless the price falls to $1 which is the MU he receives from the 3 rd unit
consumed.
The above ‘expected student responses’ are indicative only and relate to just part of what is required.
.
2
Part 2
a.
The table below shows Wiremu’s marginal utility for sundaes and potato chips.
Table 3 – Wiremu’s marginal utility for sundaes and potato chips
Sundaes
Potato chips
Quantity
Marginal
Utility ($)
MUsundaes / Pricesundaes
Before P↑
After P↑
(packets)
Marginal
Utility ($)
MUchips / Pricechips
1
120
3
1.5
1
200
2.5
2
100
2.5
1.25
2
160
2
3
80
2
1
3
120
1.5
4
60
1.5
0.75
4
80
1
5
40
1
0.5
5
40
0.5
Quantity
- Suppose the price of sundaes rises from 40c to 80c but the price of chips stays at 80c
1st In the column provided calculate the MU/price for both sundaes and chips before the price rise
2nd If Wiremu has up to $3.20 to spend use these results to identify the quantities of sundaes and chip
Wiremu will buy:
Quantity
Amount spent
- Sundaes ____3_____
____1.20_____
- Chips
____1.80____
____2_____
$3.00
3rd
In the column provided calculate the MU/price for coke when the price rises to 80c
4th
If Wiremu still has no more $3 to spend use the new results to identify the quantities of sundaes and
chip Wiremu will buy after the price rise:
Quantity
Amount spent
- Sundaes ____1_____
_____.80____
- Chips
_____2.40__
_____3____
$3.20
5th On the axes below sketch the effect of the increase in price of sundaes (from 40c to 80c) on both
graphs
- your sketch graph doesn’t have to be drawn to scale but SHOULD include price and quantity data
for sundaes and potato chips from your analysis above
Graph 2 - Wiremu’s Demand for Sundaes
Price (c)
Graph 3 - Wiremu’s Demand for Potato Chips
Price ($)
80
80
40
d
1
3
d1
d
Quantity
2
3
Quantity
(packets)
3
b.
Justify the effects of a price rise for sundaes on Wiremu by writing detailed explanations about

How it affected the consumption of sundaes
- refer to specific data and economic models to support your explanation

How it affected the consumption of potato chips
- refer to specific data and economic models to support your explanation
Wiremu will spend his limited income ($3.20) on goods and services so that the MU per dollar is the
same for all products he consumes.

When the price of sundaes increases the MU/price falls. Table 3 shows that before the price rise
Wiremu would consume 3 sundaes as the MU/price = $2 which was the same as MU/price for 2
packets of potato chips. However, after the price increase MU/price for 3 sundaes is $1.
To regain equilibrium Wiremu decreases his consumption of sundaes which increases his MU/price
ratio. Table 3 shows equilibrium is restored at 1 sundae as the MU/price is $1.50 which is the same
as the MU/price of 3 packets of potato chips (and is within his spending limit of $3.20)
Graph 2 shows the effect of the increase in price of sundaes as a movement along Wiremu’s
demand curve for sundaes from 3 to 1 sundaes as the price rose from 40 to 80 cents.

Not only did Wiremu decrease consumption of sundaes to regain equilibrium he also increased
consumption of potato chips
An increase in consumption of potato chips lowers the MU of potato chips and also the MU per
dollar ratio. Table 3 shows that if Wiremu increases consumption to 3 packets of potato chips his
MU/price will be $1.50. This matches the MU/price for 1 sundae (and is within his spending limit of
$3.20) so equilibrium is restored.
Graph 3 shows the effect of the increase in price of sundaes as a shift in Wiremu’s demand curve
for potato chips to the right. As potato chips and sundaes are substitutes for Wiremu he switches
consumption from sundaes to potato chips when the price of sundaes rises.
The above ‘expected student responses’ are indicative only and relate to just part of what is required.
Thank you for giving it your best shot
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