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Consumer Choice
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13
CHECKPOINTS
© 2013 Pearson
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Problem 3 Problem 3
© 2013 Pearson
CHECKPOINT 13.1
Practice Problem 1
Jerry’s burger and magazine budget is $12 a week.
© 2013 Pearson
CHECKPOINT 13.1
Solution
Jerry can afford the quantity of magazines (QM) and
the quantity of burgers (QB) such that total
expenditure equals $13.
© 2013 Pearson
CHECKPOINT 13.1
Study Plan Problem
Jerry’s burger and magazine budget is $12 a
week. The price of a burger is $2, and the price
of a magazine is $4. Which combinations of
burgers and magazines can Jerry afford?
A. When Jerry buys 6 burgers a week, he cannot afford to buy a
magazine.
B. Jerry can afford to buy 2 burgers and 2 magazines a week.
C. When Jerry spends all of his budget on magazines, he buys 3
magazines a week.
D. Jerry can afford to buy 3 burgers and 3 magazines a week.
E. Options A, B and C are correct.
© 2013 Pearson
CHECKPOINT 13.1
Practice Problem 2
Jerry’s burger and magazine budget is $12 a week.
© 2013 Pearson
CHECKPOINT 13.1
Solution
The relative price of a magazine is the number of burgers
that Jerry must forgo to get 1 magazine.
© 2013 Pearson
CHECKPOINT 13.1
A. $2.00
B. 0.50 magazine per burger
C. 2.00 burgers per magazine
D. 2.00 magazines per burger
E. 0.50 burger per magazine
© 2013 Pearson
CHECKPOINT 13.1
Practice Problem 3
Jerry’s burger and magazine budget is $12 a week.
Solution
The budget line is a straight
line from 6 burgers on the
y-axis to 3 magazines on the
x-axis.
© 2013 Pearson
CHECKPOINT 13.1
© 2013 Pearson
CHECKPOINT 13.1
© 2013 Pearson
CHECKPOINT 13.1
In the news
Paying for gas forces painful sacrifices
With the average price of gas hitting $3.70 a gallon, many
people cut back on other things, such as meal-to-go at the
grocery store and shopping.
Source: CNN Money, May 4, 2011
Consider Robyn who buys only two goods: gasoline and
meals-to-go. As the gas price rises, describe the change in
his consumption possibilities, the relative price of a meal-to-
go, and Robyn’s real income in terms of meals-to-go.
© 2013 Pearson
CHECKPOINT 13.1
Solution
As the price of gasoline rises, Robyn’s consumption
possibilities shrink.
© 2013 Pearson
CHECKPOINT 13.1
© 2013 Pearson
CHECKPOINT 13.2
Practice Problem 1
The table shows Jerry’s total
utility from burgers and
magazines.
Solution
The marginal utility from the 4th
burger equals the total utility
from 4 burgers minus the total
utility from 3 burgers, which is
38 – 32 = 6 units of utility.
Practice Problem 2
The table shows Jerry’s total
utility from burgers and
magazines.
Solution
If Jerry buys 4 burgers for $8 and
1 magazine for $4, he spends is
$12 budget.
© 2013 Pearson
CHECKPOINT 13.2
Study Plan Problem
If Jerry buys 4 burgers and 1 Jerry’s total utility from
burgers and magazines.
magazine a week, he ____
maximize his total utility.
A. does not; Jerry can maximize his utility
by buying more burgers and fewer
magazines
B. does
C. does not; Jerry can maximize his utility
by buying fewer burgers and more
magazines.
The price of a burger is $2, the
D. does not; Jerry can maximize his utility price of a magazine is $4, and
by spending all of his income on Jerry has $12 to spend.
burgers or by spending all of his
income on magazines
© 2013 Pearson
CHECKPOINT 13.2
Practice Problem 3
The table shows Jerry’s
total utility from burgers and
magazines.
© 2013 Pearson
CHECKPOINT 13.2
Solution
Jerry maximizes utility if he buys 2
burgers and 2 magazines a week.
© 2013 Pearson
CHECKPOINT 13.2
In the news
Pricier bread and cereal. Coming soon?
Surging wheat and corn prices could hit the items in your
grocery basket soon.
Source: CNN Money, May 19, 2011
How will the rise in the price of food change the budget line
and the quantity of food that Americans buy?
© 2013 Pearson
CHECKPOINT 13.2
Solution
The budget line rotates inward. Consumers allocate
their budget between food (F) and non-food (N) items
such that (MUF/PF) = (MUN/PN).
© 2013 Pearson
CHECKPOINT 13.3
Practice Problem 1
In a year, Tony rents 500 DVDs at $3 each and pays $50
for 10,000 gallons of tap water. Tony is maximizing total
utility.
© 2013 Pearson
CHECKPOINT 13.3
Solution
Because Tony is maximizing his total utility:
Practice Problem 2
Over the years, Americans have spent a smaller
percentage of income on food and a larger percentage on
cars.
© 2013 Pearson
CHECKPOINT 13.3
Solution
The average person has one car and the marginal utility
from driving the car exceeds the marginal utility from food.
© 2013 Pearson