Answer Key to Problem Set #5
Spring 2007
1.
Problem #2, Parkin, pg. 167.
Answer
:
a.
To draw a graph of Martha’s total utility from classical CDs, plot the
number of CDs on the xaxis and Martha’s utility from CDs on the yaxis. The curve will
look similar to Fig. 7.2(a). To draw a graph of Martha’s total utility from travel books,
repeat the above procedure but use the travel book data.
b.
Martha gets more utility from 1 travel book than she does from 1classical
CD at all quantities in the table.
c.
To draw a graph of Martha’s marginal utility from classical CDs, plot the
number of CDs on the xaxis and Martha’s marginal utility from CDs on the yaxis. The
curve will look similar to Fig. 7.2(b). To draw a graph of Martha’s marginal utility from
travel books, repeat the above procedure but use the travel book data.
Martha’s marginal utility from classical CDs is the increase in total utility she
gets from one additional classical CD. Similarly, Martha’s marginal utility from travel
books is the increase in total utility she gets from one additional travel book.
d.
Martha receives more marginal utility from her first travel book than from
her first classical CD. At quantities greater than 1, Martha gets more marginal utility
from an additional classical CD than she gets from an additional travel book when she
has the same number of each.
e.
Martha buys 3 classical CDs and 2 travel books.
When Martha buys 3 classical CDs and 2 travel books, she spends $75. Martha
maximizes her utility when she spends all of her money and the marginal utility per
dollar spent on classical CDs and travel books is the same. When Martha spends the $75
available and the price of each good is $15, she can buy a total of 5 CDs and travel
books. When Martha buys 3 classical CDs, her marginal utility per dollar spent is 16/15
units per dollar and when Martha buys 2 travel books her marginal utility per dollar
spent is 16/15 units per dollar.
2.
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 Spring '08
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 Supply And Demand, Utility, ice cream

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