Utility Problems

# Utility Problems

## Utility Problems

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1. Utility Problems ECO 284 - Microeconomics - Dr. D. Foster

2. UtilityProblems Buying gyros & sodas at the county fair. If these were free … “Buy” G1, G2, G3, S1, S2, S3, S4 and stop. Total utility = 200+80+70+52.5+45+25+18.75 = 491.25 utils But, they aren’t free …

3. UtilityProblems Buying gyros & sodas at the county fair.You have \$10 and MU\$=30 utils. When the Pgyro=\$2.50 and Psoda=\$.75 … Buy G1, S1, S2, S3, G2 and stop, saving \$2.75. Total utility = 200+52.5+45+25+80 + 82.5 = 485 utils There is no other combination with a higher utility… Save all \$10? TU = 300.Buy 1 of each, save \$6.75? TU = 455

4. UtilityProblems Buying gyros & sodas at the county fair.You have \$10 and MU\$=30 utils. When the Pgyro=\$2.50 and Psoda=\$1.00 … Buy G1, S1, S2, G2 and stop, saving \$3.00 Total utility = 200+52.5+45+80 + 90 = 467.5 utils Substitution effect: Buy less sodas, buy more … \$ in pocket. Income effect: Higher prices means lower living standard.

5. UtilityProblems Buying gyros & sodas at the county fair.You have \$10 and MU\$=30 utils. When the Pgyro=\$2.00 and Psoda =\$.75… Buy G1, S1, S2, S3, G2, G3 and stop, saving \$1.75 Total utility = 200+52.5+45+25+80+70+52.5 = 525 utils Substitution effect: Buy more gyros, keep less … \$ in pocket. Income effect: Lower prices means higher living standard.

6. UtilityProblems Buying pizza and root beer. If these were free … “Buy” 6 slices of pizza and 6 mugs of root beer. Total utility = 80 utils But, they aren’t free …

7. UtilityProblems #2. Pizza=\$1 and root beer is \$.50 Buying pizza and root beer. a. MU of \$ is 0 and you hold \$6 … Buy RB1, RB2, P1, P2 & RB3, P3, P4 & RB4 … keep \$0 TU = 44 + 28 = 72 utils

8. UtilityProblems #2. Pizza=\$1 and root beer is \$.50 Buying pizza and root beer. b. MU of \$ is 5 and you hold \$10 … Buy RB1, RB2, P1, P2 & RB3, P3, P4 & RB4 … keep \$4 TU = 44 + 28 + 20 = 92 utils

9. UtilityProblems #2. Pizza=\$1 and root beer is \$.50 Buying pizza and root beer. c. MU of \$ is 9 and you hold \$2 … Buy RB1, RB2, P1 and stop … spent everything If you could, you’d borrow \$ from someone to buy more. TU = 18 + 14 = 32 utils

10. UtilityProblems #3. Pizza=\$1.50 and root beer is \$.50 Buying pizza and root beer. MU of \$ is 5 and you hold \$10 … Buy RB1, RB2, RB3, P1, P2 & RB4, P3, P4 … keep \$2 TU = 44 + 28 + 10 = 82 utils Substitution effect: “buy” less money in your pocket. Income effect: Buy a lower living standard (82 utils vs. 92)

11. UtilityProblems #4. All you can eat buffet for \$4.50 Buying pizza and root beer. Need to know … TU of \$4.50 … we know TU of meal (80). TU of \$4.50 = 45; worth buying, since we gain 80 utils from the meal. If MU of \$1 is 10? TU of \$4.50 = 90; not worth buying, since we gain only 80 utils from the meal. If MU of \$1 is 20?

12. Utility Problems ECO 284 - Microeconomics - Dr. D. Foster