The Analysis of Consumer Choice

Read the Introduction and these two sections. Attempt the "Try It" problems at the end of each section. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

2. The Concept of Utility

2.7. Answers to Try It! Problems

  1. He is spending $4.50 (= $0.75 × 6) on potato chips and $3.50 (= $0.50 × 7) on candy bars, for a total of $8. His budget constraint is $8.
  2. In order for the ratios of marginal utility to price to be equal, the marginal utility of a candy bar must be 4. Let the marginal utility and price of candy bars be MUB and PB, respectively, and the marginal utility and price of a bag of potato chips be MUC and PC, respectively. Then we want

\frac{MU_C}{P_C} = \frac{MU_B}{P_B}

We know that PC is $0.75 and PB equals $0.50. We are told that MUC is 6. Thus

\frac{6}{0.75} = \frac{MU_B}{0.50}

Solving the equation for MUB, we find that it must equal 4.