LectureAssignment06 - 1 ECONOMICS 100 Lecture Assignment #6...

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Lecture Assignment #6 (Theory of Household Behaviour: Utility Approach) Source: LR11 and LR10, Chapter 6, exclude Appendix for now, and references to Substitution Effect and Income Effect. (The derivation in class differs from the text, but the end result is the same!). 1. Utility Theory - One Good Assume that satisfaction or Total Utility can be measured in units called "jollies" (your text cleverly avoids the issue of units!), and that the satisfaction derived by an individual from the consumption of widgets is: Quantity Total Utility (units) (jollies) 0 0 1 10 2 18 3 24 4 28 5 30 6 30 7 28 1.1 Plot the Total Utility Schedule, as a continuous curve. 1.2 Define, and compute Marginal Utility . Plot it as a continuous curve. 1.3 Suppose widgets are a "free good" , available in any quantity at a zero price. How many widgets will the individual consume? 1.4 Now assume that widgets cost $1 each, and that a dollar can bring 2 jollies from any number of other transactions. How many widgets will the individual consume now? 1.5
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LectureAssignment06 - 1 ECONOMICS 100 Lecture Assignment #6...

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