Assignment

1. What is utility?:

What is marginal utility?:
What does diminishing marginal utility mean?:
A member of ACE (American Coaster Enthusiasts) loves to ride the Giant Dipper at the Boardwalk. This person buys an all day pass. What does diminishing marginal utility suggest about what rides the person will go on?

2. What's the difference between MU and MU/P?

What is more important to the consumer: MU or MU/P and why?

3. If the MU/P of pizza is greater than the MU/P of popcorn, what should the consumer do to maximize utility?

What happens to the MU/P of shoes if the price of shoes goes up, and how should the consumer respond to this to maximize utility?

4. There are two goods: coffee and cupcakes. Price of cupcakes is $4 each. The price of coffee is $3 a mug. Draw a budget constraint (or budget line) for a consumer who has budgeted $24 to spend on the two goods. Graphically, show what happens if the price of a cupcake rises to $6?

5. The Indifference Curves, Multiple Parts:

a) Why is an Indifference Curve called an Indifference Curve?
b) What is the shape of an indifference curve?
c) How many indifference curves does a typical consumer have?
d) True/False & Explain: Every consumer is assumed to have the same Indifference Curves.
e) True/False & Explain: Two indifference curves can touch or cross each other.

6. Graphically show the consumer's equilibrium (point of maximum utility) using indifference curves. Explain why is that point maximum utility?