Suppose Table 1 shows your demand schedule for cans of soda. (a) What is your to

Question

Suppose Table 1 shows your demand schedule for cans of soda. (a) What is your total utility from three cans of soda? (b) What is your marginal utility from the third can of soda? (c) If price were $1.50, how much would your consumer surplus be? p. 170

Suppose Table 2 shows your demand schedule for CDs. (a) What is your total utility from four CDs? (b) What is your marginal utility from the fourth CD? (c) If the price is $2, how much will your consumer surplus be?

Suppose that at three units purchased, marginal utility is $8 and total utility is $30. If the marginal utility of the fourth unit purchased is $6, how much is the total utility of four units?

You're in the desert on an extremely hot day and become quite thirsty. Luckily you come upon a stand where they're selling bottled water. You would be willing to pay $10 for the first bottle, $5 for the second bottle, and $1 for the third. Luckily they're charging just a dollar. (a) How many bottles do you buy? (b) How much is your marginal utility from the third bottle? (c) How much is the total utility you will get from the three bottles? (d) How much is your consumer surplus?

Explanation / Answer

1. a. Total utility expressed as dollar value is: $3.00+$2.00+$1.50 = $6.50 b. Since you would be willing $1.50 for the last can of soda, the marginal utility from it is $1.50. c. If the price was $1.50 consumer surplus would be your utility - costs = $6.50 - $4.50 = $2.00. 2. a. Total utility expressed as dollar value is: $10.00+$8.00+$6.00+$4.00 = $28.00 b. Since you would be willing $4.00 for the last can of soda, the marginal utility from it is $4.00. c. If the price was $2.00 consumer surplus would be your utility - costs = $30.00 - $10.00 = $20.00. 3. Total utility with 3 units = $30. The 4th unit adds another $6, so total utility at 4 units is $36. 4. a. You will buy 3 bottles. You buy as many bottles as you can until the marginal utility equals the price, which happens at the third bottle. b. Your marginal utility from the third bottle is $1. You know this, because you would spend $1 on it. c. Total utility = $10+$5+$1= $16 d. Consumer Surplus = Utility - price = $16-$3 = $13

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