Thursday, October 26, 2006

Quiz 5 due Tuesday Oct 31st

Quiz 5 – Consumer Theory
Professor Matthew Festa
Due in Class Tuesday Oct 31st

1) State the law of diminishing marginal utility. Reproduce the Total Utility Graph and Marginal Utility graph from the chapter and explain why Total Utility begins to decline after the 6th unit consumed (2 points).

2) State and explain all 4 theories of consumer behavior (1 points).

3) The marginal benefit Joe gains from going to watch the Mets is $200 dollars while the marginal Utility he gets from going to the Movies is $80 dollars. A met game costs $100 dollars (this is the playoffs) while the movie of the week, which his girlfriend wants to see, costs $10. Given a choose between the 2,which one would he choose that night? (2 points).

4) Consumer theory states that consumers will always manage their consumption so that the marginal benefit of one product equals the marginal benefit of another product. Explain why this is the case.

For reference, explain why MU/$ of A = MU/$ of B (1 points).

5) Joan has $14 in income and she can spend the money on either pizza or ice cream. The price of pizza is $2 dollars and the price of ice cream is 1$. What combination of pizza and ice cream will she purchase given the following MB (which are not converted into MB per dollar terms!!!)

1) 24
2) 20
3) 18
4) 16
5) 12
6) 6
7) 4

Ice cream
1) 10
2) 8
3) 7
4) 6
5) 5
6) 4
7) 3

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