chapter5demandthebenefitsideofthemarket

chapter5demandthebenefitsideofthemarket内容摘要：

nd cashews cost 25 cents per ounce, is Toby maximizing his total utility from the kinds of nuts? If so, explain how you know. If not, how should he rearrange his spending? Rational Spending Rule: Spending should be allocated across goods so that the marginal utility per dollar (the ratio) is same for each good MU X/PX = MUY/PY If Rational Spending Rule is not satisfied, we can always reallocated the goods Rational Spending Rule: Increase (decrease) the consumption of one good, will decrease (increase) the MU per dollar of that good. (Marginal Utility is a decreasing function with consumption) MUX / PX MUY / PY The adjustment process continues until there is no way to increase the utility by moving the last dollar from one good to the other, ., when Rational Spending Rule is satisfied. MUX / PX = MUY / PY Spending a dollar more on good X, the MU per dollar from consuming X falls Spending a dollar less on good Y, the MU per dollar from consuming Y rises Check the marginal utility per dollar spent on the two goods. • The MU per dollar from consuming peanuts is: 100utils per ounce/$ per ounce = 1000utils per dollar from his last dollar spent on peanuts • The MU per dollar from consuming cashews is: 200utils per ounce/$ per ounce = 800utils per dollar from his last dollar spent on cashews MU/$ on Peanuts: 1000utils per dollar MU/$ on Cashews: 800utils per dollar Toby is not maximizing his total utility from the kinds of nuts. In order to maximizes his total utility, he should rearrange his consumption. He should increase total utility by spending one dollar more on peanuts and one dollar less on cashews. Chapter 5 Problem 6 6) Ann lives in Princeton and mutes by train each day to her job in New York City (20 round trips per month). When the price of a round trip goes up from $10 to $20, she responds by consuming exactly the same number of trips as before, while spending $200 per month less on restaurant meals. a) Does the fact that her quantity of train travel is pletely unresponsive to the price increase imply that Ann is not a rational consumer? b) Explain why an increase in train travel might affect the amount she spends on restaurant meals. Facts: Ann is facing a rise in price of train ticket. Her total monthly spending on train ticket has not changed and spending $200 less on meals. Her preferences determine her utility/benefit. She values more on work than meals. She doesn’t want to miss 1 day trip, meaning that she doesn’t want to miss 1 day work. She has no choice on other transportation to mute to work. So, she has to take the train. Therefore, her choice of preferences is to decrease her spending on meals in order to pensate the increase in price of train ticket. Then, thi。