Consumer Behavior and Utility Maximization

Introduction to Economics – Problem 3

1. Judy’s and Dan’s demand schedules for cola are:

Price (cents per carton) Quantity demanded by (cartons per week)
Judy Dan
10 12 6
30 9 5
50 6 4
70 3 3
90 1 2
If Judy and Dan are the only two individuals, what is the market demand
for cola?
2. Lee’s and Lou’s demand schedules for CDs are:
Price (euros per CD) Quantity demanded by (CDs per year)
Lee Lou
6 12 10
8 9 8
10 6 6
12 3 4
14 0 2
If Lee and Lou are the only two individuals, what is the market demand
for CDs?
3. Jason enjoys rock CDs and spy novels and spends $60 a month on them.
The following table shows the utility he gets from each good:
Quantity/month Utility from rock CDs Utility from spy novels
1 60 20
2 110 38
3 150 53
4 180 64
5 200 70
6 206 75

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Consumer Behavior and Utility Maximization

a. Draw graphs showing Jason’s utility from rock CDs and from spy
novels.
b. Compare the two utility graphs. Can you say anything about Jason’s
preferences?
c. Draw graphs that show Jason’s marginal utility from rock CDs and
from spy novels.
d. What do the two marginal utility graphs tell you about Jason’s
preferences?
e. If rock CDs and spy novels both cost a10 each, how does Jason
spend the $60?
4. Mary enjoys CDs and books and spends $75 a month on them. The
following table shows the utility she gets from each good:
Quantity/month Utility from CDs Utility from books
1 90 120
2 110 136
3 126 148
4 138 152
5 146 154
a. Draw graphs showing Mary’s utility from CDs and from books.
b. Compare the two utility graphs. Can you say anything about Mary’s
preferences?
c. Draw graphs that show Mary’s marginal utility from CDs and from
books.
d. What do the two marginal utility graphs tell you about Mary’s
preferences?
e. If a CD and a book cost $15 each, how does Mary spend the $75 a
month?
5. Max enjoys windsurfing and snorkeling. He obtains the following utility
from each of these sports:
Hours per day Utility from windsurfing Utility from snorkeling
1 120 40
2 220 76
3 300 106
4 360 128
5 400 140
6 412 150
7 422 158
Max has $35 to spend and he can spend as much time as he likes on his
leisure pursuits. Windsurfing equipment rents for $10 an hour, and
snorkeling equipment rents for $5 an hour.

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Consumer Behavior and Utility Maximization

a. Draw a graph that shows Max’s budget line.

b. How long does he spend windsurfing and how long does he spend
snorkeling?
6. Pete enjoys rock concerts and the opera. The table shows the utility he
gets from each activity:
Concerts per month Utility from rock concerts Utility from operas
1 120 200
2 100 160
3 80 120
4 60 80
5 40 40
6 20 0
Pete has $200 a month to spend on concerts. A rock concert ticket is
$20, and an opera ticket is $40. How many rock concerts and how many
operas does Pete attend?
7. In exercise 5, Max’s sister gives him $20 to spend on his leisure pursuits,
so he now has $55.
a. Draw a graph that shows Max’s consumption possibilities.
b. How many hours does Max choose to windsurf and how many hours
does he choose to snorkel now that he has $55 to spend?
8. In exercise 6, Pete’s uncle gives him $60 to spend on concert tickets, so
he now has $260.
a. Draw a graph that shows Pete’s consumption possibilities.
b. How many rock concerts and how many operas does he now attend?
9. In exercise 7, if the rent on windsurfing equipment decreases to $5 an
hour, how many hours does Max now windsurf and how many hours does he
snorkel?
10. In exercise 6, if the price of a opera ticket decreases to $20, how many
rock concerts and operas will Pete attend?
11. Max takes a Club Med vacation, the cost of which includes unlimited
sports activities. There is no extra charge for equipment. If Max
windsurfs and snorkels for 6 hours a day, how many hours does he
windsurf and how many hours does he snorkel?
12. Pete, in exercise 6, wins a lottery and has more than enough money to
satisfy his desires for rock concerts and opera. He decides that he would
like to attend a total of 7 concerts each month. How many rock concerts
and how many operas does he now attend?

University of Management and Economics | TITH Seyla, Master in Economics 3