Microeconomic

6. Kylie spends her income of $150 per week on two goods: movies (which cost $5 each) and books
(which cost $10 each). At her current level of consumption, the marginal utility from the last movie
consumed is 20 and the marginal utility from the last book 2 consumed is 30. Is Kylie maximizing her
utility? Why or why not? If not, what should Kylie do to achieve a higher level of utility?

kylie have tomaximizing her utility by spend more of her income on movies. This should decrease
the marginal utility of the additional good consumedtherefore lowering the marginal utility per
dolar. Since less of her money being alloted to book the marginal utility increase along with the
marginal utility per dolar. Kylie should continue doing this until the marginal utility per dolar is the
same for both movies and book

INCOME AND SUBSTITUTION EFFECTS

7. When the price of corn increases, the quantity of corn demanded falls. Explain this change in
terms of income and substitution effects.

Effects from price of corn increase make consumer purchasing power decreaseses toward corn
causes they income can not accommodate the new price of corn and the effect of substitution make
demand for substitution to increase as costumer change their demand to substitution of corn.