2. Arnie has $20 per week to spend on any combination of pineapples and green tea....
2. Arnie has $20 per week to spend on any combination of pineapples and green tea. The price of a pineapple is $4 and the price of a bottle of green tea is $2. The table below shows Arnie's utility values. Use the table to answer the questions that follow.
|
Quantity of Pineapples |
Total Utility |
Marginal Utility |
Marginal Utility per Dollar |
Quantity of Green Tea |
Total Utility |
Marginal Utility |
Marginal Utility per Dollar |
|
1 |
32 |
1 |
28 |
||||
|
2 |
52 |
2 |
46 |
||||
|
3 |
64 |
3 |
54 |
||||
|
4 |
68 |
4 |
60 |
||||
|
5 |
70 |
5 |
64 |
||||
|
6 |
71 |
6 |
66 |
||||
|
7 |
71 |
7 |
67 |
a. Complete the table by filling in the blank spaces.
b. Suppose Arnie purchases 4 pineapples and 2 bottles of green tea. Is he consuming the optimal consumption bundle? If so, explain why. If not, what combination should he buy and why?
3. Define behavioral economics. What are three common mistakes that behavioral economics says consumers often make? Give an example of each mistake.
Homework Answers
Answer to Question No. 2
| Quantity of Pineapples | Total Utility | Marginal Utility | Marginal Utility per Dollar | Quantity of Green Tea | Total Utility | Marginal Utility | Marginal Utility per Dollar |
| 1 | 32 | 32 | 8.0 | 1 | 28 | 28 | 14.0 |
| 2 | 52 | 20 | 5.0 | 2 | 46 | 18 | 9.0 |
| 3 | 64 | 12 | 3.0 | 3 | 54 | 8 | 4.0 |
| 4 | 68 | 4 | 1.0 | 4 | 60 | 6 | 3.0 |
| 5 | 70 | 2 | 0.5 | 5 | 64 | 4 | 2.0 |
| 6 | 71 | 1 | 0.3 | 6 | 66 | 2 | 1.0 |
| 7 | 71 | 0 | 0.0 | 7 | 67 | 1 | 0.5 |
| Quantity of Pine Apple | Quantity of Green Tea | Total Expenditure | Remarks | |
| 3 | 4 | 20 | Equilibrium with all income spent | |
| 4 | 6 | 28 | Unaffordable | |
| 5 | 7 | 34 | Unaffordable | |
| Question b. | 4 | 2 | 20 | All spent but equil marginal principle is not fulfiilled so utility is not maximised |
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