CIX1001/ CBEB1107

Tutorial 5
1. What is consumer equilibrium? How is it achieved?
2. Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80
cents, respectively. At present she is buying these products in amounts such that the marginal
utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is
she buying the utility-maximizing combination of bread and milk? If not, how should she
reallocate her expenditures between the two goods?
3. Using the utility-maximization rule as your point of reference, explain the income and
substitution effects of an increase in the price of product B, with no change in the price of
product A.
4. Assume that a consumer purchases a combination of products A and B. The MUa is 5 and the
Pa is $5. The MUb is 6 and the Pb is $6. What should this consumer do to maximize utility?
5. Columns 1 through 3 in the table below show the marginal utility which a particular
consumer would get by purchasing various quantities of products A, B, and C.
(1)
(2)
(3)
Unit of product Marginal utility, A Marginal utility, B Marginal utility, C
First
Second
Third
Fourth
Fifth
Sixth
Seventh

18
16
14
12
10
8
6

39
36
33
30
27
24
21

12
10
9
8
7
5
3

If the prices of A, B, and C are $2, $3, and $1, respectively, and the consumer has $26 to
spend on these three products, what combination of the three products should be purchased in
order to maximize utility?

CIX1001/ CBEB1107
Tutorial 5
6. A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which
their consumption will yield is shown in the table below. Assume that the prices of X, Y, and
Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend.
Product X

Product Y

Product Z

Quantity

Utility

Marginal
Utility
per $

42

_____

14

_____

32

_____

82

_____

26

_____

60

_____

118

_____

36

_____

84

_____

148

_____

44

_____

100

_____

170

_____

50

_____

110

_____

182

_____

54

_____

116

_____

182

_____

56.4

_____

120

_____

Quantity

Utility

Marginal
Utility
per $

Quantity

Utility

Marginal
Utility
per $

a) Complete the table by computing the marginal utility per dollar for successive units of
X, Y, and Z to one or two decimal places.
b) (b) How many units of X, Y, and Z will the consumer buy when maximizing utility
and spending all income? Show this result using the utility maximization formula.
c) (c) Why would the consumer not be maximizing utility by purchasing 2 units of X, 4
units of Y, and 1 unit of Z?
7. You are choosing between two goods, X and Y, and your marginal utility from each is as
shown in the table below. If your income is $9 and the prices of X and Y are $2 and $1,
respectively, what quantities of each will you purchase to maximize utility? What total utility
will you realize? Assume that, other things remaining unchanged, the price of X falls to $1.
What quantities of X and Y will you now purchase? Using the two prices and quantities for
X, derive a demand schedule (prices and quantities demanded table) for X.