Please read the instructions for completing homeworks.
Concepts and Critical Thinking
Question 1
How can we use utility functions, which have actual numbers that can be measured and compared, to model preferences and still say with a straight face that preferences are subjective? Hint: what does it mean for a utility function to be ordinal or cardinal? Why can multiple utility functions describe the same preferences?
Problems
Question 4
Juan enjoys both music and fireworks. His income is $240 per month. Music streaming costs $12 per month, and fireworks cost $8 per bag.
Part A
Graph the budget constraint Juan faces, with music on the vertical axis and fireworks on the horizontal axis.
Part B
If Juan spends all his income on music, how much music can he afford? Plot a point that illustrates this scenario.
Part C
If Juan spends all his income on fireworks, how many bags of reworks can he afford? Plot a point that illustrates this scenario.
Part D
If Juan spends half his income on fireworks and half his income on music, how much of each can he afford? Plot a point that illustrates this scenario.
Part E
Connect the dots to create Juan’s budget constraint. What is the slope of the budget constraint?
Question 5
Ashkar has the following utility function for consuming peanut butter and jelly :
His marginal utilities are:
Put on the horizontal axis and on the vertical axis.
Part B
Suppose he is currently consuming bundle1 . How much utility is he getting?
Part C
From his current consumption, how much more utility would he get by consuming 1 more ? What about 1 more ?
Question 6
Kelly’s utility function for drinking Coke () and Pepsi () is given by:
Put Coke on the horizontal axis and Pepsi on the vertical axis.
Part B
Write an equation for .2
Question 7
A consumer has the following utility function:
Part A
Fill in the following table by calculating the utility for each bundle of and . Round to two decimal places.
0 | 1 | 2 | 3 | |
---|---|---|---|---|
x | 0 | |||
x | 1 | |||
x | 2 | |||
x | 3 |
Part B
Graph three indifference curves on the same graph below: the first showing the bundle(s) that yield a utility level of 1; the second showing the bundle(s) that yield a utility level of 2; the third showing the bundle(s) that yield a utility level of 3.