# Economics (McConnell), 18th Edition

## Chapter 7: Consumer Behavior (+ Appendix)

### Key Questions

1. Complete the following table and answer the questions below:

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1. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?
2. "A rational consumer will purchase only 1 unit of the product represented by these data since that amount maximizes marginal utility." Do you agree? Explain why or why not.
3. "It is possible that a rational consumer will not purchase any units of the product represented by these data." Do you agree? Explain why or why not.

2. Columns 1 through 4 in the table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are \$18, \$6, \$4, and \$24, respectively, and that Ricardo has an income of \$106.

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1. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility?
2. How many dollars will Ricardo choose to save?
3. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule.

3. You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is \$9 and the prices of X and Y are \$2 and \$1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to \$1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (price-quantity-demanded table) for X.

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4. Using Figure 4, explain why the point of tangency of the budget line with an indifference curve is the consumer's equilibrium position. Explain why any point where the budget line intersects an indifference curve is not equilibrium. Explain: "The consumer is in equilibrium where MRS = PB/PA."

Chapter 07 Key Question Solutions (62.0K)