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CHAPTER 7
Utility Maximization
A. Short-Answer, Essays, and Problems
1. Describe the law of diminishing marginal utility. On what assumptions is this law based?
2. Use diminishing marginal utility to explain why millionaires often do not have many homes, even if they
can afford it.
3. Explain the three characteristics of utility.
4. What is the difference between total utility and marginal utility?
5. Can marginal utility be negative? Briefly explain with an example.
6. Fill in the following table on the total and marginal utilities of a product A. Also answer the questions.
Units of Marginal
product A Total utility utility
0 0
1 20 _____
2 35 _____
3 _____ 10
4 _____ 5
5 _____ 0
6 45 _____
7 35 _____
8 _____ −15
(a) Graph both the total utility and marginal utility curves together on the same graph.
(b) Explain the shape of both of the curves.
(c) Identify the point where utility is maximized on both curves. Discuss the reasoning behind each value.
7. Fill in the following table on the total and marginal utilities of product A. Also answer the questions.
Units of Marginal
0 0
1 50 _____
2 80 _____
3 _____ 20
4 _____ 15
5 _____ 10
6 130 _____
7 125 _____
8 _____ −15
(b) Explain the shape of their curves.
8. (Consider This) In 2015 the federal government began requiring restaurants print the number of calories for
each menu item. Discuss the desired outcome and the actual outcome that occurred.
9.Describe how marginal utility and demand are related.
10. Give a brief description of the law of diminishing marginal utility and use it to explain the downward slope
of the demand curve.
11. What are the four dimensions of the typical consumer’s situation?
12. Explain the utility maximizing rule for two products in words and using algebra.
13. What is consumer equilibrium? How is it achieved?
14. Explain the utility maximizing rule in terms of hot dogs and hamburgers purchased at a ballgame.
15. Why is it not sufficient to just compare the marginal utility of two goods when maximizing utility?
16. Assume that a consumer purchases a combination of products A and B. The MUa is 5 and the Pa is $5.
The MUb is 6 and the Pb is $6. What should this consumer do to maximize utility?
17. Assume that a consumer purchases a combination of products Y and Z. The MUy is 50 and the Py is $25.
The MUz is 20 and the Pz is $5. What should this consumer do to maximize utility?
18. Columns 1 through 3 in the table below show the marginal utility which a particular consumer would get
by purchasing various quantities of products A, B, and C.
(1) (2) (3)
Unit of Marginal Marginal Marginal
product utility, A utility, B utility, C
First 18 39 12
Second 16 36 10
Third 14 33 9
Fourth 12 30 8
Fifth 10 27 7
Sixth 8 24 5
Seventh 6 21 3
If the prices of A, B, and C are $2, $3, and $1, respectively, and the consumer has $26 to spend on these
three products, what combination of the three products should be purchased in order to maximize utility?
19. The table below shows the marginal utility a costumer would get by purchasing various quantities of A, B,
and C. The product prices for A, B, and C are $3, $2, and $1 respectively. The consumer has $20 to spend
on the three products.
(1) (2) (3)
First 30 22 12
Second 27 20 10
Third 24 18 8
Fourth 21 16 6
Fifth 18 14 4
Sixth 15 12 2
(a) 5 units of A, 6 units of B, and 4 units of C.

(b) 2 units of A, 5 units of B, and 4 units of C.
(c) 3 units of A, 4 units of B, and 3 units of C.
(d) 4 units of A, 3 units of B, and 2 units of C.
20. A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their
consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and
$8, respectively, and that the consumer has an income of $74 to spend.
Product X Product Y Product Z
Marginal Marginal Marginal
Utility Utility Utility
Quantity Utility per $ Quantity Utility per $ Quantity Utility per $
1 42 _____ 1 14 _____ 1 32 _____
2 82 _____ 2 26 _____ 2 60 _____
3 118 _____ 3 36 _____ 3 84 _____
4 148 _____ 4 44 _____ 4 100 _____
5 170 _____ 5 50 _____ 5 110 _____
6 182 _____ 6 54 _____ 6 116 _____
7 182 _____ 7 56.4 _____ 7 120 _____
(a) Complete the table by computing the marginal utility per dollar for successive units of X, Y, and Z to
one or two decimal places.
(b) How many units of X, Y, and Z will the consumer buy when maximizing utility and spending all
income? Show this result using the utility maximization formula.
(c) Why would the consumer not be maximizing utility by purchasing 2 units of X, 4 units of Y, and 1 unit
of Z?
21. A consumer has an income of $24 to spend each day. The only two goods the consumer is interested in
purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table
below. The price of B does not change and is $2. The marginal utility per dollar from B is also shown in
the table. But the price of A varies as shown in the table. The marginal utility per dollar from A when the
price of A is $8 and $4 is shown in the following table.
Good A Good B
Quantity MU MU/$8 MU/$4 MU MU/$2
1 48 6 12 24 12
2 32 4 8 15 8
3 24 3 6 12 6
4 16 2 4 8 4
5 8 1 2 6 3
6 4 0.5 1 4 2
Complete the table below to show how much of A the consumer will buy each week at each of the two
possible prices of A. Also, show how much B will be demanded when the price of A changes.
Quantity of A Quantity of B
Price of A demanded Price of B demanded
$8.00 _____ $2.00 _____
4.00 _____ 2.00 _____
22. Discuss the basic determinants for an individual’s demand for a specific good or service.
23. Explain the income and substitution effects and use the concepts to describe what happens when the price
of a product decreases.
24. What are two related effects that combine to make a consumer able and willing to buy more of a specific
product at a lower price than a higher price? Explain the logic of both effects.
25. A student asserts in class that the income and substitution effects lead to a decrease in the consumption of a
normal good when the price decreases. Do you agree with the statement? Explain using an example.
26. Assume that a person only purchases two goods, food and clothing, and has a fixed budget constraint. Both
goods are normal goods. If the price of food decreases, what will happen to the consumption of clothing
based on the income effect?
27. In a typical month, a family buys six bags of candy bars as snacks when the price of a bag costs $4.00.
When the price of the candy bars falls to $3.00 a bag, the family buys seven bags of candy bars a month.
When the price of a bag of candy bars rises to $6.00, the family buys three bags a month. Answer these
questions: (a) How did the fall in the price affect real income in terms of bags of candy bars? (b) How did
the rise in the price affect real income in terms of bags of candy bars? [Hint: How many bags of candy bars
could the family buy in situation (a) and in situation (b) without changing the amount they spend on candy
bars in a typical month?]
28. How can the utility-maximizing rule be used to explain the substitution and income effect?
29. Discuss the cost of leisure time in industrially advanced countries relative to those in developing countries.
30. A vice president of a company argues that the president of the company should raise workers’ wages if the
president wants less absenteeism. The president says that wages probably should be cut so that the workers
could not afford to miss so much work. Evaluate the two views using the income and substitution effects in
your analysis.
31. Use marginal-utility analysis to explain why the growing popularity of iPad over laptop and desktop
computers.
32. Why would an ounce of gold be priced higher than an ounce of coffee beans, even though coffee is
generally considered more essential than gold? Explain the paradox in terms of marginal and total utility.
33. Is the following quotation consistent with the theory of consumer behavior? “The yield on time spent
working increases as the result of economic growth. Productivity per hour rises. This means that the time
allocation which has represented equilibrium at our previous income level is disrupted. The yield on time
devoted to other activities must also be raised. We are aware that time in production becomes increasingly
scarce with economic growth. What we will now claim in addition to this is that changes in the use of time
will occur, so that the yield on time in all other activities is brought into parity with the yield on working
time. In other words, economic growth entails a general increase in the scarcity of time.” (From: Staffan
Linder, The Harried Leisure Class)
34. A person has a basic choice between eating meals at home and eating meals in a restaurant. The cost of the
food that is eaten at home is $10 per meal. The cost of a restaurant meal is $20. It takes two hours to eat a
meal at home (including preparation time and cleanup time). It takes one hour of time to eat a meal in a
restaurant. The marginal utilities of the home meal and the restaurant meal are the same. The person
values time at $12 per hour. What does the theory of consumer behavior suggest the rational consumer will
decide to do: eat at home or in a restaurant? Answer by first excluding the value of time from the decision.
Then include the value of time in the decision.
35. How does the pricing of medical care in the United States affect the quantity consumed?
36. Explain why, in most cases, you would rather receive a gift of $25 cash over receiving a $25 sweater
chosen by your significant other.
37. Meaning well, your grandmother gives you a new wool sweater for your birthday that she knitted herself.
You, however, hate wearing wool. What is the utility problem that you face? What can you do to remedy
the problem?
38. (Last Word) Describe the relationship between raising the marginal cost of crime and the quantity of crime
committed. Explain the implications of this relationship as applied to property crimes.
39. (Last Word) Suppose Billy is determining whether he should steal a movie from Walmart. The cost of the
movie is $25 and the direct cost and the opportunity cost of stealing the movie is zero. There is a 15 percent
chance of getting caught, and caught, a fine of $250 will be charged.
(a) Will Billy steal the movie?
(b) Suppose Billy has a guilt cost of $10. Will Billy steal the movie?
40. (Last Word) Discuss the decision a criminal must make before deciding whether or not to steal.
B. Answers to Short-Answer, Essays, and Problems
1. Describe the law of diminishing marginal utility. On what assumptions is this law based?
The law of diminishing marginal utility means that as the consumer obtains more units of a given good or
service, the consumer receives increasing amounts of total utility or satisfaction. However, the more units
of the item that the consumer obtains, the less additional satisfaction or utility each successive unit of the
good or service will provide. Total utility increases but by diminishing amounts.
The law assumes that more is preferred to less; that is, more units of a consumer good or service will bring
more total utility. But the law also assumes that consumer satisfaction from the first unit obtained is greater
than that for successive units. In other words, the intensity of the want or need declines as it is gradually
more and more satisfied.
2. Use diminishing marginal utility to explain why millionaires often do not have many homes, even if they
can afford it.
The law of diminishing marginal utility tells us that as a consumer obtains more units of a given good or
service, the consumer receives increasing amounts of total utility or satisfaction. However, the more units
of the item that the consumer obtains, the less additional satisfaction or utility each successive unit of the
good or service will provide. A millionaire may have a permanent home and a couple vacation homes, but
the additional benefit of another house is weak. Even though their income may allow for additional houses,
diminishing marginal utility of additional houses means they will not purchase it.
3. Explain the three characteristics of utility.
The three characteristics of utility are (1) Utility and usefulness are not synonymous. While a good or
service may bring you satisfaction, it may be useless functionally. (2) Utility is subjective. The utility of a
given good or service varies across individuals. (3)Utility is difficult to quantify. Numerical comparisons of
goods and services are difficult to measure.
4. What is the difference between total utility and marginal utility?
Marginal utility is the additional satisfaction received from consuming one more unit of a product. Total
utility is the overall or total satisfaction received from consuming some particular amount of the product.
Total utility can be determined by summing the marginal utility for each unit of a product that is consumed.
5. Can marginal utility be negative? Briefly explain with an example.
Yes. The consumption of an additional unit of a product may be unpleasant. Consider a person who likes
pizza. The first four slices of a large pizza taste great. Each slice gives the consumer additional
satisfaction, although the amount of satisfaction diminishes with the consumption of each slice. Finally,
the consumer eats the fifth slice of pizza and develops a stomachache from overeating. That fifth slice had
negative marginal utility for this pizza consumer.
6. Fill in the following table on the total and marginal utilities of a certain product A. Use your results to
answer the following questions.
Units of Marginal
0 0
1 20 _____
2 35 _____
3 _____ 10
4 _____ 5
5 _____ 0
6 45 _____
7 35 _____
8 _____ −15
(b) Explain the shape of both of the curves.
Units of Total Marginal

product A utility utility
0 0
1 20 20
2 35 15
3 45 10
4 50 5
5 50 0
6 45 −5
7 35 −10
8 20 −15
60
50
Total Utility/ Marginal Utility
40
30
20
10
0
0 2 4 6 8 10
-10
-20
Units of Product A
(a) See graph.
(b) The total utility curve has the bell shape because as the quantity is increased from smaller to larger
there is a utility gain from greater consumption. However, as quantity increases there is less and less
utility gain until utility starts to decline and the curve becomes upsloping. The marginal utility curve
clearly displays the law of diminishing marginal utility. Here, as consumption increases, marginal
utility becomes smaller and smaller as each additional unit of production become less and less
satisfying until marginal utility reaches zero and subsequently becomes negative.
(c) On the total utility curve, the maximized point is the point where total utility is at its highest value,
which would be the peak of the total utility curve. This is at the quantity of 4.5 and the total utility
value of 50. On the marginal utility curve, the maximized point is the point where marginal utility is
zero. This means that at that point there can be no further gains from additional units of consumption,
or that utility is maximized. Mathematically, the marginal utility curve represents the slope of the total
utility curve and the point where MU = 0 is the peak value of total utility. As with total utility, the
peak quantity is 4.5 with a total utility value of 50.
7. Fill in the following table on the total and marginal utilities of a certain product A. Use your results to
answer the following questions.
Units of Marginal
0 0
1 50 _____
2 80 _____
3 _____ 20
4 _____ 15
5 _____ 10
6 130 _____
7 125 _____
8 _____ −15
(b) Explain the shape of their curves.
Units of Marginal
0 0
1 50 50
2 80 30
3 100 20
4 115 15
5 125 10
6 130 5
7 125 -5
8 110 −15
(a) See graph.

(b) The total utility curve has the bell shape because as the quantity is increased from smaller to larger
there is a utility gain from greater consumption. However, as quantity increases there is less and less
utility gain until utility starts to decline and the curve becomes upsloping. The marginal utility curve
clearly displays the law of diminishing marginal utility. Here, as consumption increases, marginal
utility becomes smaller and smaller as each additional unit of production become less and less
satisfying until marginal utility reaches zero and subsequently becomes negative.
(c) On the total utility curve, the maximized point is the point where total utility is at its highest value,
which would be the peak of the total utility curve. This is at the quantity of 4.5 and the total utility
value of 50. On the marginal utility curve, the maximized point is the point where marginal utility is
zero. This means that at that point there can be no further gains from additional units of consumption,
or that utility is maximized. Mathematically, the marginal utility curve represents the slope of the total
utility curve and the point where MU = 0 is the peak value of total utility. As with total utility, the
peak quantity is 4.5 with a total utility value of 50.
8. (Consider This) In 2015 the federal government began requiring restaurants print the number of calories for
each menu item. Discuss the desired outcome and the actual outcome that occurred.
The federal government had hoped that posting the calorie count of menu items would cause consumers to
purchase items that were healthier. For every dollar spent on food, fewer calories would be consumed.
Instead consumers purchased more calories than before the posted calories. Consumers responded by
maximizing the number of calories for every dollar spent.
9. Describe how marginal utility and demand are related.
Marginal utility helps explain the downsloping nature of the demand curve. Since additional units of
consumption yield less and less utility, consumers will only consume additional units of a good if the price
lowers. The consumer would rather spend additional dollars on another good with equal or greater utility,
not diminishing utility. Put on a larger scale, this develops the idea that price has to lower for more
quantity to be consumed, thus supporting the inverse relationship between price and quantity demanded.
10. Give a brief description of the law of diminishing marginal utility and use it to explain the downward slope
of the demand curve.
Utility is a subjective notion in economics, referring to the amount of satisfaction a person gets from
consumption of a certain product. Marginal utility refers to the extra utility a consumer gets from one
additional unit of a specific product. In a short period of time, the marginal utility derived from successive
units of a given product will decline. This situation is known as diminishing marginal utility. The law of
diminishing marginal utility can be used to explain the downsloping demand curve. Consumer wants are
insatiable, in general, but wants for specific products can be satisfied. The more units of a product that a
consumer obtains, the less he or she will want additional units of that product because additional units
provide less and less satisfaction. The only way to get a consumer to purchase more units of a product is to
drop the price. What applies to the individual consumer also applies to consumers as a group. Hence, there
is an inverse relationship between price and quantity demanded.
11. What are the four dimensions of the typical consumer’s situation?
First, the consumer is a rational person who tries to maximize total utility. Second, the consumer has
preferences for certain types of products and also has an idea of how much marginal utility will be obtained
from consuming an additional unit. Third, the consumer has a budget constraint that limits the amount of
products purchased, although this constraint is tighter for lower income consumers than higher income
ones. Fourth, each product that the consumer wishes to purchase has a positive price that reflects the
relative scarcity or value of the product. These conditions serve as the basis for understanding how the
consumer allocates money income to purchases of different products to maximize utility.
12. Explain the utility maximizing rule for two products in words and using algebra.
Utility maximizing rule explains how a consumer decides to allocate his or her money income so that the
last dollar spent on each product purchased yields the same amount of marginal or extra utility. The
consumer is in equilibrium when marginal utility per dollar spent on each product is equal. When a
consumer is in equilibrium, there is no incentive to change spending on products, unless preferences,
income, or prices change. The marginal utility per dollar spent is equalized, which means that a consumer
compares the extra utility from each product with its cost. In a two-product case, as long as one product
provides more utility per dollar than another, the consumer will buy more of the first product. As more of
the first product is purchased, its marginal utility diminishes until the amount of utility per dollar just
equals that of the other product. The algebraic statement of this utility-maximizing state is that the
consumer will allocate income in such a way for these two products (A and B) such that: MU of A/price
of A = MU of B /price of B.
13. What is consumer equilibrium? How is it achieved?
Consumer equilibrium is achieved when the consumer has no incentive to change his expenditure pattern,
he has reached his maximum utility for a given set of constraints. This is a achieved when the consumer
allocates his money income so the last dollar spent on each product yields the same marginal utility.
14. Explain the utility maximizing rule in terms of hot dogs and hamburgers purchased at a ballgame.
The utility maximizing rule states that to maximize their utility the consumer should spend his or her
money income so that the last dollar spent on each product purchased yields the same marginal utility. In
terms of hot dogs and hamburgers at a ballgame, the consumer should purchase a bundle of hotdogs and
hamburgers such that the marginal utility of another hotdog is equal to the marginal utility of an additional
hamburger.
15. Why is it not sufficient to just compare the marginal utility of two goods when maximizing utility?
Though one good might have a higher marginal utility level than another good, an important aspect to take
into account is the dollar value necessary to gain that utility. If two goods, A and B, have marginal utilities
of 16 and 12, respectively, only looking at the marginal utility would suggest that the consumer should
consume more of A than B at that given quantity. However, let’s say the price of good A is $8 and the
price of good B is $4. These values give marginal utilities per dollar of $2 and $3, respectively. In this
case, the consumer gains the most marginal utility per dollar from consuming more of good B. In sum, it is
important to not only account for the total comparative marginal utilities of two goods, but also the dollar
value necessary to receive those additional units of utility.
16. Assume that a consumer purchases a combination of products A and B. The MUa is 5 and the Pa is $5.
The MUb is 6 and the Pb is $6. What should this consumer do to maximize utility?
The MUa /Pa = 1. The MUb /Pb = 1. The consumer is maximizing utility and should make no changes in
consumption patterns. The marginal utility per dollar is the same for both products.
17. Assume that a consumer purchases a combination of products Y and Z. The MUy is 50 and the Py is $25.
The MUz is 20 and the Pz is $5. What should this consumer do to maximize utility?
The MUy/Py = 2. The MUz/Pz = 4. The consumer should consume more of product Z and less of
product Y until the marginal utility per dollar is the same for both products.
18. Columns 1 through 3 in the table below show the marginal utility which a particular consumer would get
by purchasing various quantities of products A, B, and C.
(1) (2) (3)
First 18 39 12
Second 16 36 10
Third 14 33 9
Fourth 12 30 8
Fifth 10 27 7
Sixth 8 24 5
Seventh 6 21 3
If the prices of A, B, and C are $2, $3, and $1, respectively, and the consumer has $26 to spend on these
three products, what combination of the three products should be purchased in order to maximize utility?
2 units of A, 6 units of B, and 4 units of C, shown by the fact that: 16 /$2 = 24/$3 = 8/$1. The $26 in
income is spent.
19. The table below shows the marginal utility a costumer would get by purchasing various quantities of A, B,
and C. The product prices for A, B, and C are $3, $2, and $1 respectively. The consumer has $20 to spend
on the three products.
(1) (2) (3)
First 30 22 12
Second 27 20 10
Third 24 18 8
Fourth 21 16 6
Fifth 18 14 4
Sixth 15 12 2
(a) 5 units of A, 6 units of B, and 4 units of C.

(b) 2 units of A, 5 units of B, and 4 units of C.
(c) 3 units of A, 4 units of B, and 3 units of C.
(d) 4 units of A, 3 units of B, and 2 units of C.
(a) This is an unattainable utility-maximizing bundle. 5 units of A, 6 units of B, and 4 units of C is a

utility-maximizing point where all of the per dollar utilities equal 6 utils. However, this point is
outside of the consumer’s budget constraint of $20, since the bundle’s value totals $31.
(b) This is an inferior bundle. While 2 units of A, 5 units of B, and 4 units of C fits the consumer’s budget
constraint of $20, the per dollar utility of each of the goods does not equal. Here, 2 units of A
produces a per dollar utility of 9 utils. 5 units of B produces a per dollar utility of 7 utils and 4 units of
C produces a per dollar utility of 6 utils. The total utility value is 183 utils.
(c) This is the utility-maximizing bundle. First of all, the bundle fits into the consumer’s budget constraint
of $20. Second, the per dollar utilities of each of the products equals 8 utils and the total utility is
maximized at a value of 187 utils.
(d) This is an inferior bundle. Though the bundle fits into the budget constraint of the consumer, the per
dollar utility values are not equal. Here, 4 units of A produces a per dollar utility value of 6 utils. 3
units of B produces a per dollar utility value of 9 utils and 3 units of C produces a per dollar utility
value of 10 utils. The total utility value is 184 utils.
20. A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their
consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and
$8, respectively, and that the consumer has an income of $74 to spend.
1 42 _____ 1 14 _____ 1 32 _____
2 82 _____ 2 26 _____ 2 60 _____
3 118 _____ 3 36 _____ 3 84 _____
4 148 _____ 4 44 _____ 4 100 _____
5 170 _____ 5 50 _____ 5 110 _____
6 182 _____ 6 54 _____ 6 116 _____
7 182 _____ 7 56.4 _____ 7 120 _____
(a) Complete the table by computing the marginal utility per dollar for successive units of X, Y, and Z to
one or two decimal places.
(b) How many units of X, Y, and Z will the consumer buy when maximizing utility and spending all
income? Show this result using the utility maximization formula.
(c) Why would the consumer not be maximizing utility by purchasing 2 units of X, 4 units of Y, and 1 unit
of Z?
(a) See table.

1 42 4.2 1 14 7.0 1 32 4.00
2 82 4.0 2 26 6.0 2 60 3.50
3 118 3.6 3 36 5.0 3 84 3.00
4 148 3.0 4 44 4.0 4 100 2.00
5 170 2.2 5 50 3.0 5 110 1.25
6 182 1.2 6 54 2.0 6 116 .75
7 182 0.0 7 56.4 1.2 7 120 .50
(b) The consumer will purchase 4 units of X, 5 units of Y, and 3 units of Z to maximize utility. The
marginal utility per dollar for each of the products is equal to 3.0. Also, all income ($74) is spent on
the products ($40 for X, $10 for Y, and $24 for Z equals $74).
(c) Although the marginal utility per dollar spent is equal to 4.0 for X, Y, and Z, the consumer does not
spend all available income. There is $74 available but the consumer only spends $36. More goods
could be obtained by spending the income to maximize utility as shown in the answer to (b).
21. A consumer has an income of $24 to spend each day. The only two goods the consumer is interested in
purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table
below. The price of B does not change and is $2. The marginal utility per dollar from B is also shown in
the table. But the price of A varies as shown in the table. The marginal utility per dollar from A when the
price of A is $8 and $4 is shown in the following table.
Good A Good B
Quantity MU MU/$8 MU/$4 MU MU/$2
1 48 6 12 24 12
2 32 4 8 15 8
3 24 3 6 12 6
4 16 2 4 8 4
5 8 1 2 6 3
6 4 0.5 1 4 2
Complete the table below to show how much of A the consumer will buy each week at each of the two
possible prices of A. Also, show how much B will be demanded when the price of A changes.
$8.00 _____ $2.00 _____
4.00 _____ 2.00 _____
$8.00 2 $2.00 4
4.00 4 2.00 4
22. Discuss the basic determinants for an individual’s demand for a specific good or service.
The three determinants of individual demand are (1) preferences, (2) money income, and (3) the relative
prices. Individual preferences influence how much of the product the individual is willing to purchase.
Individual demand represents the amount of the product the person is willing and able to purchase. Money
income limits the amount an individual is able to purchase, constraining the demand for a given product.
Relative prices are also important in determining individual demand. If a given product becomes relatively
more expensive, individual demand may fall due to the product consuming a greater percentage of the
individual’s money income.
23. Explain the income and substitution effects and use the concepts to describe what happens when the price
of a product decreases.
Income and substitution effects explain the inverse relationship between price and quantity demanded. The
income effect is the effect of a change in price on consumers’ real incomes, and therefore on the quantity of
that product demanded. A decrease in price means that more real income is available to buy subsequent
amounts of the product. The substitution effect is the effect of a change in a product’s price on its
expensiveness relative to other substitute products’ prices. A decrease in price for a product with no
change in the prices of substitutes means that the product has become relatively less expensive compared to
its substitutes. Consumers, therefore, can afford to buy more of this product and have an incentive to buy
less of the substitutes, whose prices are relatively higher than was previously the case.
24. What are two related effects that combine to make a consumer able and willing to buy more of a specific
product at a lower price than a higher price? Explain the logic of both effects.
The two effects are the income and substitution effect. For most products, a price decrease gives
consumers more income to spend on that product and other products, so the quantity demanded for that
product increases. There are three steps in the logic for a typical product: The price falls, which gives the
consumer more income to spend on that product and other products, thus increasing the quantity demanded
for that product. A price decrease also makes the product a more attractive buy relative to its substitutes.
Consumers will now purchase more of the relatively cheaper product instead of the now more expensive
substitutes, thus increasing the quantity demanded of the product. With both effects, the end result is the
same: the quantity demanded of the product increases as its price decreases.
25. A student asserts in class that the income and substitution effects lead to a decrease in the consumption of a
normal good when the price decreases. Do you agree with the statement? Explain using an example.
Disagree with the statement. Just the opposite is true of the income and substitution effects when the price
of a normal good decreases. With a normal good such as pizza, if the price of pizza should fall, then the
consumer has more real income. This increase in real income can be spent on pizza or other normal goods.
Also, pizza is now cheaper relative to other substitute goods, such as hamburgers. The substitution effect
means that the lower price of pizza will give the consumer an incentive to increase the quantity demanded
for pizza.
26. Assume that a person only purchases two goods, food and clothing, and has a fixed budget constraint. Both
goods are normal goods. If the price of food decreases, what will happen to the consumption of clothing
based on the income effect?
The price decrease means that the real income of the person has increased. This income effect will give the
person more money to spend on both food and clothing. The consumption of clothing will increase due to
this income effect.
27. In a typical month, a family buys six bags of candy bars as snacks when the price of a bag costs $4.00.
When the price of the candy bars falls to $3.00 a bag, the family buys seven bags of candy bars a month.
When the price of a bag of candy bars rises to $6.00, the family buys three bags a month. Answer these
questions: (a) How did the fall in the price affect real income in terms of bags of candy bars? (b) How did
the rise in the price affect real income in terms of bags of candy bars? [Hint: How many bags of candy bars
could the family buy in situation (a) and in situation (b) without changing the amount they spend on candy
bars in a typical month?]
In the typical month, the family spends $24.00 on bags of candy bars ($4.00 × 6 bags). (a) When the price
of a bag falls to $3.00 a bag that means real income measured in terms of bags of candy bars has increased
by 2 bags because the family can now afford to buy 8 bags instead of 6 with the $24.00 they typically spent
on candy bars. However, they decide to purchase only 7 bags ($3.00 × 7 = $21.00), so the other $3.00 can
be spent on other goods. (b) When the price rises to $6.00 a bag, that means that real income measured in
terms of candy bars has fallen by 2 bags because the family can now afford to buy only 4 bags instead of 6
with the $24.00 typically spent on candy bars.
28. How can the utility-maximizing rule be used to explain the substitution and income effect?
According the utility-maximizing rule, when the price of a product decreases, the consumer will no longer
be in equilibrium. Equilibrium will only be restored when more of the product is purchased and the
marginal utility of the product decreases to match the decline in price. The consumer will purchase or
substitute this now cheaper product for the relatively more expensive substitute. The income effect is
shown by the fact that a decrease in price increases the real income of the consumer. Thus, the consumer
can purchase more of this product and other products until equilibrium is achieved for the new level of real
income.
29. Discuss the cost of leisure time in industrially advanced countries relative to those in developing countries.
The cost of leisure time is significantly higher in industrially advanced countries. When individuals earn a
high wage, the opportunity cost of taking an hour of leisure time is high. In developing countries the hourly
wage is traditionally lower than developed ones, then opportunity cost of leisure time is also lower.
30. A vice president of a company argues that the president of the company should raise workers’ wages if the
president wants less absenteeism. The president says that wages probably should be cut so that the workers
could not afford to miss so much work. Evaluate the two views using the income and substitution effects in
your analysis.
The analysis must be based on the idea that most workers prefer leisure to working for the president of the
company. Therefore, the higher their income, the more leisure they can afford (income effect). On the
other hand, the higher their wage, the more costly it will be to give up an hour of work, and the less leisure
“time-off” they will substitute for work (substitution effect). The income and substitution effects tend to
work in opposite directions.
If the income effect outweighs the substitution effect, then the vice president is wrong. Paying the workers
more will enable them to work shorter hours and earn enough to afford their added leisure despite the partly
offsetting effect of the substitution effect that has made leisure more expensive per hour.
If the substitution effect outweighs the income effect, then the vice president is right and the president is
wrong. Paying the workers less will cause them to work fewer hours because they don’t lose as much for
each hour not worked. The effect of the lower income will partially offset the lower price of leisure, but
not enough to cut the rate of absenteeism. In fact, absenteeism may increase.
Either could be correct. The solution depends on the strength of the income and substitution effects for the
workers, and that, in turn, depends on many factors such as their present income status, the opportunities
for using one’s leisure time, and so on.
31. Use marginal-utility analysis to explain why the growing popularity of iPads over laptop and desktop
computers.
The improved technology of the iPad in terms of consuming digital content created a higher marginal-
utility-to-price ratio (=MU/P) than the ratios for alternative products. This shifted spending away from
those products toward iPads in order to increase total utility. Because the marginal utility to price is quite
low, consumers only purchased one iPad.
32. Why would an ounce of gold be priced higher than an ounce of coffee beans, even though coffee is
generally considered more essential than gold? Explain the paradox in terms of marginal and total utility.
The basic reason is that the gold is relatively scarce, and it has a high price. Coffee is relatively abundant,
and has a low price. The utility-maximizing rule indicates that consumers should continue purchasing any
product until the ratio of its marginal utility to its price is equal to that for all other products. Gold must
have a high marginal utility and price, while coffee must have a low marginal utility and price for
consumers to maximize utility. Consumers, however, generally purchase only small quantities of gold
because of the high price, and large quantities of coffee because of the low price. Coffee is considered to
be more essential than gold, even though its price is lower, because the total utility from consuming coffee
(sum of the marginal utilities) is much greater than the total utility from consuming gold.
33. Is the following quotation consistent with the theory of consumer behavior? “The yield on time spent
working increases as the result of economic growth. Productivity per hour rises. This means that the time
allocation which has represented equilibrium at our previous income level is disrupted. The yield on time
devoted to other activities must also be raised. We are aware that time in production becomes increasingly
scarce with economic growth. What we will now claim in addition to this is that changes in the use of time
will occur, so that the yield on time in all other activities is brought into parity with the yield on working
time. In other words, economic growth entails a general increase in the scarcity of time.” (From: Staffan
Linder, The Harried Leisure Class)
Since relative scarcity is measured by relative prices, this quote does seem consistent with the theory of
consumer behavior. In other words, as productivity per hour and therefore wage rates rise, the value or
utility of each production hour rises. In essence, this makes each hour of leisure more expensive, so that to
“purchase” leisure (by working fewer hours) one must raise the marginal utility of leisure. In the theory of
consumer behavior, the outcome should be such that the utility maximizing rule holds, where the marginal
utility of labor relative to its “price” is equated to the marginal utility of every other consumer purchase
relative to its price. Here the price of leisure rose relative to the prices of other things, so the marginal
utility of leisure must also rise if everything else remains unchanged.
34. A person has a basic choice between eating meals at home and eating meals in a restaurant. The cost of the
food that is eaten at home is $10 per meal. The cost of a restaurant meal is $20. It takes two hours to eat a
meal at home (including preparation time and cleanup time). It takes one hour of time to eat a meal in a
restaurant. The marginal utilities of the home meal and the restaurant meal are the same. The person
values time at $12 per hour. What does the theory of consumer behavior suggest the rational consumer will
decide to do: eat at home or in a restaurant? Answer by first excluding the value of time from the decision.
Then include the value of time in the decision.
If time is not a consideration in the cost of a meal, then the marginal utility per dollar of a meal at home is
greater than the marginal utility per dollar of the restaurant meal (MUh /$10 > MUr /$20). The consumer
will eat meals at home. If, however, the value of time is included in the cost of a meal, then the marginal
utility per dollar spent will be the greater for restaurant meals than home meals. The full cost of a home
meal is $34 ($10 food plus $24 in time). The full cost of the restaurant meal is $32 ($20 in food and $12 in
time). Since the marginal utility of restaurant and home meals are the same, the marginal utility per dollar
of restaurant meals will be greater than the marginal utility per dollar of home meals when the value of time
enters the calculation (MUh /$32 > MUr/$34).
35. How does the pricing of medical care in the United States affect the quantity consumed?
Health insurance pays most of the cost of medical care for individuals. Most individuals with health care
coverage wind up paying only 20 to 30 percent of the full cost of such care. Thus, the price of medical care
to the individual consumer comes at a significant discount. This “lower” price for the consumer
encourages them to consume more medical care than they otherwise would if they paid the full cost for
treatment.
36. Explain why, in most cases, you would rather receive a gift of $25 cash over receiving a $25 sweater
chosen by your significant other.
Noncash gifts may not match the recipient’s preferences and may not add as much utility as cash. The
individual can use the $25 cash to purchase a good or service that will maximize their utility. Since it is
difficult for the gift-giver know the exact preferences of the recipient the gift of cash maximizes utility.
37. Meaning well, your grandmother gives you a new wool sweater for your birthday that she knitted herself.
You, however, hate wearing wool. What is the utility problem that you face? What can you do to remedy
the problem?
The problem you face is the fact that you would receive more utility if you received the cash value of the
sweater your grandmother made instead of the sweater itself. Since you value the sweater less that what it
cost your grandmother to make it, there is a value loss and a lower utility level if achieved.
You could work to fix or avoid that problem in a number of ways. First, you could give her a list of gifts
you’d like for your birthday next year so that she’ll know what to get you. You could also recycle the gift
and give it to someone who would like a wool sweater. If the sweater had come from a store, you could
also return it to get something that you like better.
38. (Last Word) Describe the relationship between raising the marginal cost of crime and the quantity of crime
committed. Explain the implications of this relationship as applied to property crimes.
The basic idea is that as the marginal cost of a property crime decreases, more property crimes will be
committed. This relationship means that society can reduce property crimes by increasing their price. The
price can be increased by increasing fines, prison sentences, or the probability of getting caught (better
surveillance and more police). It is also possible to increase the price by increasing the guilt associated with
criminal activity. This latter objective can be achieved through family, religious, or education experiences.
39. (Last Word) Suppose Billy is determining whether he should steal a movie from Walmart. The cost of the
movie is $25 and the direct cost and the opportunity cost of stealing the movie is zero. There is a 15 percent
chance of getting caught, and caught, a fine of $250 will be charged.
(a) Will Billy steal the movie?
(b) Suppose Billy has a guilt cost of $10. Will Billy steal the movie?
(a) To determine if Billy will steal the movie a comparison of the value of the movie must be made with
the probability of getting caught. The cost of stealing is $22.50 ($150 * .15 chance of getting caught).
Billy will steal the movie since his expected cost of stealing is below the value of the movie.
(b) If Billy has a guilt cost of $10 he will no longer steal the movie. The cost of getting caught is now
32.50, greater than the value of the movie.
40. (Last Word) Discuss the decision a criminal must make before deciding whether or not to steal.
A criminal, like a consumer, must compare the marginal utility of the good with the price it. The price of
the good, in the case of stealing, is the cost the criminal would bear by stealing the item. The marginal
utility of the good is the value the individual places on the item. The potential costs of stealing include
direct costs (supplies and tools), forgone income from legitimate work opportunities, and guilt costs. If the
criminal is caught he or she may bear additional costs in the form of fines, imprisonment, and shame.
C. Appendix Questions
41. Explain the difference between cardinal and ordinal utility. Which is better to use when modeling
consumer behavior and why?
42. What is shown by the budget line in a two-product (A and B) case? Describe what happens when there is a
change in income or the price of a product.
43. What is the significance of the slope on a two-product budget line? What effect does a change in income
have on the slope? A change in product price?
44. Suppose a consumer has a daily income of $100 and purchases just two goods A and B. The price of good
A is $5 and the price of good B is $4.
(a) What is the slope of the budget line?
(b) Suppose the consumer’s income decreases to $80. What is the new slope?
(c) Suppose the price of product B decreases to $2. What is the new slope?
45. How will an increase in income affect the budget line for two goods, all other things equal? How does an
increase in the price of one good affect the budget line for two goods, all other things equal?
46. Suppose a consumer has a daily income of $48 and purchases just two goods, A and B. The price of A is
$8 and the price of B is $6. In the graph below, draw the budget line for the consumer. Indicate the area of
the below graph that is attainable given the income and the area that is unattainable.
47. Why are indifference curves downsloping?
48. What is the rationale for the slope of an indifference curve in a two-product (A and B) case?
49. Explain two important characteristics of indifference curves for two goods.
50. Explain the meaning of the “marginal rate of substitution.”
51. Why can’t indifference curves intersect?
52. What is shown by the indifference map for two goods? Which indifference curve would a consumer want
to be on?
53. What are the conditions for equilibrium in indifference curve analysis?
54. A consumer has a daily income of $120 and purchases two products, X and Y. The price of X is $3 and the
price of Y is $4. The following six pairs of points for X and Y define an indifference schedule: (7,40),
(10,30), (15,20), (20,15), (30,10), and (40,8). In the graph below, draw the budget line and the indifference
curve. What amounts of X and Y will allow the consumer to achieve equilibrium?
55. The graph below depicts a Bob’s budget line for 2 goods and three indifference curves depicting his
preferences. Use this graph to answer the following questions.
60
50
40
Quantity of B
30 D
A
20
C
10
B
0
0 10 20 30 40 50
Quantity of A
(a) Bob’s friend Martha argues that B represents the least pleasurable bundle for Bob. Do you agree?
(b) Bob’s friend Michael argues that Bob should choose to consume bundle D since it offers him the
highest utility. Do you agree?
(c) If you were a friend of Bob’s, which bundle would you advise him to take?
56. When does the marginal rate of substitution (MRS) in an indifference curve equal the ratio of marginal
utilities in marginal-utility analysis? Explain.
57. What happens to the budget line when the price of a product falls? Use indifference curve analysis to
explain how this change affects consumption of the product.
58. How is an indifference map like a topographic map?

59. Using the below indifference curve graph, determine the demand curve for product X across four different
prices when the income is $60 and price of Y is $1.
D. Answers to Appendix Questions
41. Explain the difference between cardinal and ordinal utility. Which is better to use when modeling
consumer behavior and why?
Cardinal utility is measured in exact numbers (such as 1, 2, and 3) which can be added, subtracted,
multiplied, or divided as used in mathematical equations. This adds difficulty to consumer behavior
models because it assumes a consumer can measure their utility in exact numbers. To solve this dilemma,
ordinal utility is preferred. Ordinal utility is measured in relative rankings of whether someone likes one
good more or less than another rather than exact numbers. A consumer can state relative preferences
without having to use precise numbers; which is called indifference curve analysis.
42. What is shown by the budget line in a two-product (A and B) case? Describe what happens when there is a
change in income or the price of a product.
A budget line shows various combinations of two products which can be purchased with a given money
income of a consumer and given the prices of the two products. A decrease in the money income of a
consumer shifts the budget line inward to the origin. An increase in the money income of a consumer shifts
the budget line outward from the origin. Price changes in either of the two products will rotate the budget
line along one axis. Assume that the quantity of product A is shown on the vertical axis. If the price of A
rises, less of A will be purchased at each of the possible combinations of A and B, so the budget line will
shift downward along the vertical A axis towards the origin. A decrease in the price of A would have the
curve shift upward along the A axis away from the origin.
43. What is the significance of the slope on a two-product budget line? What effect does a change in income
have on the slope? A change in product price?
The budget line represents the ratio of the price of product B to that of product A. In other words, it is how
much of product A a consumer must forgo to receive a certain amount of product B. Suppose products A
and B cost $2.00 and $4.00, respectively. The absolute value of their slope would thus be 2, meaning that
the consumer must forgo 2 units of product A to receive one unit of product B.
A change in income has no effect on the slope, as the relative prices have not changed. The only feature
that changes on the budget line is the intercepts.
A change in product price, however, will change the slope, assuming the ratio of relative prices changes.
For example, should $2.00 product A increase in price to $3.00, the slope would change to 4 /3, meaning
that the consumer must now give up 3 units of product A to receive 4 units of product B.
44. Suppose a consumer has a daily income of $100 and purchases just two goods A and B. The price of good
A is $5 and the price of good B is $4.
(a) What is the slope of the budget line?

(b) Suppose the consumer’s income decreases to $80. What is the new slope?
(c) Suppose the price of product B decreases to $2. What is the new slope?
(a) The slope is 4/5.

(b) Since the relative prices have remained the same, the slope is still 4/5.
(c) The new slope is 2/5.
45. How will an increase in income affect the budget line for two goods, all other things equal? How does an
increase in the price of one good affect the budget line for two goods, all other things equal?
A budget line is defined by the intercepts for the two goods in a two-quadrant graph. These intercept
values are calculated by dividing money income by the price of the product. If money income increases
and prices stay the same, then the intercept values will increase and the budget line will shift outward from
the origin. In the case of an increase in the price of one good, the rise in price will reduce the intercept
value for that good. The budget line will shift toward the origin along that axis because the new intercept
value will be less than the old intercept value for that good.
46. Suppose a consumer has a daily income of $48 and purchases just two goods, A and B. The price of A is
$8 and the price of B is $6. In the graph below, draw the budget line for the consumer. Indicate the area of
the below graph that is attainable given the income and the area that is unattainable.
47. Why are indifference curves downsloping?
Indifference curves are downsloping because both products (A and B) yield utility to the consumer. More
of both would increase utility, so for utility to remain constant, more of A means less of B and vice versa.
48. What is the rationale for the slope of an indifference curve in a two-product (A and B) case?
The slope of the curve measures the marginal rate of substitution of one good for the other (B for A) for the
consumer to have a constant level of satisfaction. The rationale for this shape is related to diminishing
marginal utility. If the consumer has many units of A and few units of B, B is more valuable at the margin
while A has a lower marginal utility. The consumer will then be willing to give up more of A to get more
units of B. This relationship changes, however, as the consumer gets more and more of B and gives up
more and more A. In this case, the consumer will not be willing to give up many units of A to obtain more
units of B. This situation means that the slope of the curve diminishes. It is thus convex to the origin.
49. Explain two important characteristics of indifference curves for two goods.
First, indifference curves are downsloping because both goods will yield utility for the consumer. Because
total utility is constant for each indifference curve, the consumption of more of one good would increase
total utility and this must be offset by the decrease in the amount consumed of the other good. More utility
is derived from the consumption of one good; less utility is obtained from the other good. This inverse
relationship produces the downward (negative) slope of the indifference curves.
Second, indifference curves are convex to the origin. The willingness to substitute one good for the other
diminishes as the consumer moves down the curve. Thus indifference curves have a diminishing slope that
makes them convex to the origin in a two-quadrant graph.
50. Explain the meaning of the “marginal rate of substitution.”
An indifference curve shows all the combinations of two products, X and Y that will give the consumer the
same level of satisfaction or utility. Indifference curves are downsloping because of the inverse
relationship between products X and Y. To obtain more of product X means giving up some total utility
from product Y. Indifference curves are also convex to the origin. Thus, the slope of an indifference curve
diminishes as you move down the curve. The reason for the diminishing slope is that the marginal rate of
substitution of product X and Y falls as you move down the curve. As the consumer moves down the
indifference curve, the consumer is willing to give up less of Y to get more of X. The marginal rate of
substitution is the slope of the indifference curve at any point.
51. Why can’t indifference curves intersect?
By definition, an indifference curve shows all the combinations of two products that give the consumer the
same level of satisfaction. Also, the higher the indifference curve on an indifference map, the greater the
level of satisfaction. If indifference curves intersected, then it would be possible to be higher on one curve
than another at one point and lower on the same curve than the other curve at another point. This
contradictory result is not possible, and thus indifference curves can’t intersect.
52. What is shown by the indifference map for two goods? Which indifference curve would a consumer want
to be on?
An indifference map shows the set of indifference curves for the consumer. Each curve is convex to the
origin and does not cross the other. Each indifference curve shows a level of utility. The farther an
indifference curve is away from the origin, the higher the level of utility. The consumer will want to be on
the indifference curve that is the one farthest from the origin.
53. What are the conditions for equilibrium in indifference curve analysis?
The utility-maximizing combination of two products, A and B, for a consumer will be determined by the
tangency of a budget line with the highest attainable indifference curve.
54. A consumer has a daily income of $120 and purchases two products, X and Y. The price of X is $3 and the
price of Y is $4. The following six pairs of points for X and Y define an indifference schedule: (7,40),
(10,30), (15,20), (20,15), (30,10), and (40,8). In the graph below, draw the budget line and the indifference
curve. What amounts of X and Y will allow the consumer to achieve equilibrium?
The answer is shown by the graph. The point of tangency between the budget line and indifference curve is
at 20X and 15Y.
55. The graph below depicts a Bob’s budget line for 2 goods and three indifference curves depicting his
60
50
40
Quantity of B 30 D
A
20
C
10
B
0
0 10 20 30 40 50
Quantity of A
preferences. Use this graph to answer the following questions.
(a) Bob’s friend Martha argues that B represents the least pleasurable bundle for Bob. Do you agree?
(b) Bob’s friend Michael argues that Bob should choose to consume bundle D since it offers him the
highest utility. Do you agree?
(c) If you were a friend of Bob’s, which bundle would you advise him to take?
(a) Martha is right in that bundle B is one of the least pleasurable bundles depicted in the graph. However,
bundle A is also a least pleasurable bundle, as it falls on the same indifference curve as B, which is the
lowest depicted in the graph. Even though A is on Bob’s budget line, the combination of goods is not
any more satisfying to Bob than bundle B.
(b) While bundle D does provide the highest utility for Bob of the bundles displayed, that point is not
attainable for him, given his budget constraints depicted by the budget line. Thus, choosing bundle D
is not a viable option.
(c) If I were Bob’s friend, I would advise him to choose bundle C. This point is ideal because, given his
preferences reflected in the indifference curve, bundle C represents the most pleasurable combination
Bob can attain given his budget constraints. Thus, Bob exhausts his resources in the most efficient and
pleasurable fashion for him.
56. When does the marginal rate of substitution (MRS) in an indifference curve equal the ratio of marginal
utilities in marginal-utility analysis? Explain.
In equilibrium for the two good case, the MRS for good A and good B equals the ratio of the price of B to
the price of A (Pb /Pa ). Similarly, in equilibrium in marginal utility analysis, the ratio of the marginal
utility of B to the marginal utility of A (MUb /MUa ) equals the price of B divided by the price of A (Pb / Pa).
MRS and the MUb /MUa equal the same value and are equal when there is equilibrium. If this equilibrium
were not the case, then the consumer could be made better off by buying more of one good and less of the
other since the marginal utility of one exceeds the other. This situation will cause the marginal utilities to
change until they reach the equilibrium ratios, and the consumer can be made no better off.
57. What happens to the budget line when the price of a product falls? Use indifference curve analysis to
explain how this change affects consumption of the product.
Changing the price of one product shifts the budget line. When the price falls, the budget line shifts
outward along the axis for that good. This means that the consumer can achieve a new equilibrium on a
higher indifference curve. For most goods, the new equilibrium will most likely increase the consumption
of the now lower-priced good.
58. How is an indifference map like a topographic map?
Each elevation line on a topographic map shows an equal level of elevation. As you move along a line, the
elevation stays the same. Similarly, each line for an indifference curve in an indifference map shows an
equal level of total utility. As you move along an indifference curve, total utility stays the same. Elevation
lines do not cross in a topo map, nor do indifference curves intersect. If you switch to another line on a
topo map, it will show a higher or lower level of elevation. If you move away from the origin in an
indifference map and switch to another indifference curve, it will show a higher level of total utility. If you
move toward the origin in an indifference map, and switch to a different curve, it will show a lower level of
total utility. Both maps do not show every level or gradation, but just major ones to illustrate differences
(elevation for a topo map; total utility for an indifference map).
59. Using the below indifference curve graph, determine the demand curve for product X across four different
prices when the income is $60 and price of Y is $1.
Each indifference curve is tangent to a budget line at 30 units of Y. Using this point as a reference point,
you can calculate the values of X that can be purchased as the price of X falls. The budget line shifts
outward along the X axis. The demand schedule for product X has the following values: ($30, 1X) ($15,
2X), ($10, 3X), and ($7.5, 4X).
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Tympany of rumen, 96.
Tympany of the intestines, 193.
Ulceration, gastric, 175.

Ulceration of intestine, follicular, 338.
Ulceration of intestine, peptic, 338.
Ulcer of intestine, 338.
Ulcerous stomatitis, 22.
Urinary calculi, 430.
Veratrum poisoning, 284.
Verminous embolism in solipeds, 210.
Verminous thrombosis, 342.
Vertigo from cryptogams, 290, 297.
Volvulus of bowel, 351.
Warts on lips, 6.
Water dropwort, poisoning by, 286.
Water hemlock poisoning, 285.
Washing powders, poisoning by, 248.
White scour, 138.
Wild radish poisoning, 286.
Wire in stomach, 188.
Wood in stomach, 188.
Wool balls in stomach, 187.
Wool eating, 76.
Worms, intestinal, 304.
Xerostomia, 38.
Yellows, the, 457.

Yew poisoning, 286.
Zinc poisoning, 277.

TRANSCRIBER’S NOTES
1. Silently corrected obvious typographical errors and
variations in spelling.
2. Retained archaic, non-standard, and uncertain spellings
as printed.
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Economics 21st Edition McConnell Test

3. Explain the three characteristics of utility.

4. What is the difference between total utility and marginal utility?

5. Can marginal utility be negative? Briefly explain with an example.

9.Describe how marginal utility and demand are related.

13. What is consumer equilibrium? How is it achieved?

(a) 5 units of A, 6 units of B, and 4 units of C.

3. Explain the three characteristics of utility.

4. What is the difference between total utility and marginal utility?

5. Can marginal utility be negative? Briefly explain with an example.

Units of Total Marginal

(a) See graph.

(a) See graph.

9. Describe how marginal utility and demand are related.

13. What is consumer equilibrium? How is it achieved?

(a) 5 units of A, 6 units of B, and 4 units of C.

(a) This is an unattainable utility-maximizing bundle. 5 units of A, 6 units of B, and 4 units of C is a

(a) See table.

47. Why are indifference curves downsloping?

50. Explain the meaning of the “marginal rate of substitution.”

51. Why can’t indifference curves intersect?

58. How is an indifference map like a topographic map?

(a) What is the slope of the budget line?

(a) The slope is 4/5.

47. Why are indifference curves downsloping?

51. Why can’t indifference curves intersect?

preferences. Use this graph to answer the following questions.

Tartar emetic poisoning, 273.

Ulceration, gastric, 175.

Yellows, the, 457.

Zinc poisoning, 277.

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