Food and Resource Economics hw 3 part 2

# Food and Resource Economics hw 3 part 2 - 7 CD’s a 2 of...

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Food and Resource Economics Homework 3 Abby Kelly Problems and Exercises 1. Scout’s utility from drinking coke (graph) a. The marginal utility starts to fall after Scout consumes his second soda. b. No he will consume the 7 th can of soda if he is a rational/logical consumer, since the marginal benefit is negative. c. Yes, if Scout consumes two cans of soda he is maximizing his benefits because the second soda gives him the greatest marginal benefit. 2. Graph 3. Johns Consumption of three goods a. In situation one john is going to buy 1 unit of A, 4 units of B, and 2 units of C, to maximize his utility. b. When the price of B rises to two dollars he consumes, 1 unit of A, 2 units of B, and 2 units of C. c. When the price of units C falls to .50 cents he consumes, 2 units of A, 5 units of B and 6 units of C. 4. You should consumer the amount that maximizes your utility. This is when the marginal utility of each good is divided by the price. The point where MU/P is equal is where the consumer has the greatest utility of both goods.

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Unformatted text preview: 7. CD’s a. 2 of Charlie Parker’s CD and 4 of Lester Young’s b. 3 of Charlie Parker’s CD and 1 of Lester Young’s c. This shows that as price of good increases the marginal utility decreases, because people do not get as much satisfaction at the higher price, there for the demand for the product in this case CDs declines. 9. Wine a. Most people wanted the 10cent bottle of wine because in our world people believe that more expensive things are better. This proves the case pretty well since both bottles where exactly the same b. This happens all over the world, you go into a store and see two products both look the same but one has a higher price. It is human nature to think that the one with a higher price is better. c. This suggest that suppliers might not want to put a price to low on their good or else people might think that it is an inferior good and not buy it....
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