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EXHIBITI DEMAND CURVE UTILITY CURVE 20 18 15 stiin 2+ 6 1- 0 10 20 40 50 60 0 10 20 40 50 30 QUANTITY 60 30 QUANTITY 4. Answer the following questions, based upon Exhibit I. a. What is the total expenditure (in dollars and in utils) if the consumer purchases 40? b. What is the consumer surplus (in dollars and in utils) if the consumer purchases 40? C. Determine the total expenditure (in dollars and in utils) and the consumer surplus (in dollars and in utils) if the consumer purchases 30 units. Formulas: Area of a rectangle = LW Area of a triangle = 22 (BH) PROBLEMS 1. a. Fill in the following table: Total utility Number of protein bars consumed per week Marginal utility (in utils) (in utils) 0 0 1 5 2 12 3 20 4 26 5 31 6 34 7 33 8 30 b. C. Construct a graph of total utility (top half of graph paper). Construct a graph of marginal utility (bottom half of graph paper). When TU is at a maximum, MU is MU is the of the TU curve. d. e. MU* = A TU AQ * graph at the midpoints 5. Assume your income is $48.00 and the price of product A is $5.00 each and the price of product B is $7.00 each. Assume saving money has no utility (satisfaction). What is your optimal combination (mix) to maximize your utility? TABLE II Units 1 2 3 4 MUS 60 50 35 20 10 MUD 77 56 49 28 21 5 6. If the marginal utility for Product A is 12 and the marginal utility for Product S is 40 and the prices are $4 and $10 respectively. To maximize total utility, the consumer would: a. buy more of Product A b. buy more of Products buy equal amounts of each product d unable to determine C. 7. When total utility is at a maximum; marginal utility is: a. increasing b. proportional C. zero d. unable to determine 8. We define utility as: a. how much we need a good b. how useful we find a good c. how much satisfaction a good gives us d. what the price of the product is 9. The income effect states that: a. as income increases, we purchase more goods and services b. when the price of a good falls, we purchase more of the cheaper good c. we replace the expensive good with the cheaper good d. our purchasing power is affected by changes in price 10. The "law of diminishing marginal utility is defined: a. as the price of a product increases, we buy a smaller quantity b. as the price of a product decreases, we buy a larger quantity C. that at some point, we start experiencing less and less extra satisfaction from additional units of a product d. once we purchase a product, we are less and less happy with it and want to purchase something else

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