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# ec-7 - E201 Spring 2009 Homework#4 Answers The questions...

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E201 Spring 2009 Homework #4 Answers The questions below draw from the material in the reading on Marginal Utility Analysis (at ereserves ( http://ereserves.indiana.edu/coursepage.asp?cid=32&page=01) . Password is water. Like other problem sets, I encourage you to work on these problems in a small group, but the answers you hand in must be your own. 1. Complete the following table: Units TU X MU X MU X /PX TU Y MU Y MU Y /P Y 1 10 10 5 5 5 1.67 2 17 7 3.5 9 4 1.33 3 20 3 1.5 12 3 1 4 22 2 1 14 2 0.67 5 23 1 0.5 15 1 0.33 a. Suppose that the consumer has \$17.00 income to spend on two goods, X and Y. If the price of X is \$2 per unit and the price of Y is \$3, which good does this consumer purchase first? Why? Buy X first, because X has higher MU per dollar. b. How much of X and Y will the consumer purchase if all income is spent? 4X and 3Y for a total of \$17 spent. c. Suppose the price of X rises from \$2 to \$4, other things constant. How much of X and Y will be purchased?

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ec-7 - E201 Spring 2009 Homework#4 Answers The questions...

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