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Chapter 6: Q.13 (page 152)

Think back to a purchase that you made recently. How would you describe your thinking before you made that purchase?

Short Answer

Expert verified

I considered my projected future earnings and decided that getting a phone that was the greatest option for me, which is exactly what I was thinking when I purchased the phone.

Step by step solution

01

Definition

Income

The change in an individual's income has the opposite effect on their consumption. Individual households' consumption decisions are heavily influenced by their income.

02

Step 2:Explanation

I recently purchased a phone from a store.

Prior to making the purchase, I considered the fact that I needed a phone because my fashioned one had stopped working. So my demand was based on the necessity of a phone in my life, as well as my personal tastes and preferences, as I have long desired a good phone. There was a financial constraint. I purchased the phone because it was less than or equal to the amount I had set aside for a phone purchase. This purchase was mostly motivated by the value I placed on the phone and my financial constraints.

My budget restriction was to purchase a phone for less than $1000, and I purchased the phone since it was just under $1000.

03

Conclusion

Therefore, it essentially means that if I charge more than $1000, my level of satisfaction will not be met.

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Most popular questions from this chapter

Praxilla, who lived in ancient Greece, derives utility from reading poems and from eating cucumbers. Praxilla gets 30 units of marginal utility from her first poem, 27 units of marginal utility from her second poem, 24 units of marginal utility from her third poem, and so on, with marginal utility declining by three units for each additional poem. Praxilla gets six units of marginal utility for each of her first three cucumbers consumed, five units of marginal utility for each of her next three cucumbers consumed, four units of marginal utility for each of the following three cucumbers consumed, and so on, with marginal utility declining by one for every three cucumbers consumed. A poem costs three bronze coins but a cucumber costs only one bronze coin. Praxilla has 18 bronze coins. Sketch Praxilla’s budget set between poems and cucumbers, placing poems on the vertical axis and cucumbers on the horizontal axis. Start off with the choice of zero poems and 18 cucumbers, and calculate the changes in the marginal utility of moving along the budget line to the next choice of one poem and 15 cucumbers. Using this step-by-step process based on marginal utility, create a table and identify Praxilla’s utility-maximizing choice. Compare the marginal utility of the two goods and the relative prices at the optimal choice to see if the expected relationship holds. Hint: Label the table columns: 1) Choice, 2) Marginal Gain from More Poems, 3) Marginal Loss from Fewer Cucumbers, 4) Overall Gain or Loss, 5) Is the previous choice optimal? Label the table rows: 1) 0 Poems and 18 Cucumbers, 2) 1 Poem and 15 Cucumbers, 3) 2 Poems and 12 Cucumbers, 4) 3 Poems and 9 Cucumbers, 5) 4 Poems and 6 Cucumbers, 6) 5 Poems and 3 Cucumbers, 7) 6 Poems and 0 Cucumbers

Maya divides her income between coffee and croissants (both of which are normal goods). An early frost in Brazil causes a large increase in the price of coffee in the United States.

a. Show the effect of the frost on Maya’s budget constraint.

b. Show the effect of the frost on Maya’s optimal consumption bundle, assuming that the substitution effect outweighs the income effect for croissants.

c. Show the effect of the frost on Maya’s optimal consumption bundle, assuming that the income effect outweighs the substitution effect for croissants.

Bart and Lisa are both optimizing consumers in the markets for shirts and hats, where they pay \(100 for a shirt \)50 for a hat. Bart buys 8 shirts and 4 hats, while Lisa buys 6 shirts and 12 hats. From this information, we can infer that Bart’s marginal rate of substitution is ___ hats per shirt, and while Lisa’s is __.

a. 2;1

b. 2;2

c. 4;1

d. 4;2

Who determines how much utility an individual will receive from consuming a good?

The price of cheese rises from \(6 to \)10 per pound, while the price of wine remains \(3 per glass. For a consumer with a constant income of \)3,000, show what happens to consumption of wine and cheese. Decompose the change into income and substitution effects.
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