Problem 2
Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of \(\$ 1\) and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying the utility- maximizing combination of bread and milk? If not, how should she reallocate her expenditures between the two goods?
Problem 3
How can time be incorporated into the theory of consumer behavior? Explain the following comment: "Want to make millions of dollars? Devise a product that saves Americans lots of time "
Problem 4
Explaine: a. Before economic growth, there were too few goods; after growth, there is too little time. b. It is irrational for an individual to take the time to be completely rational in economic decision making. c. Telling your spouse where you would like to go out to eat for your birthday makes sense in terms of utility maximization.
Problem 5
In the last decade or so, there has been a dramatic expansion of small retail convenience stores (such as 7 -Eleven, Kwik Shop, and Circle \(\mathrm{K}\) ), although their prices are generally much higher than prices in large supermarkets. What explains the success of the convenience stores?
Problem 6
Many apartment-complex owners are installing water meters for each apartment and billing the occupants according to the amount of water they use. This is in contrast to the former procedure of having a central meter for the entire complex and dividing up the collective water expense as part of the rent. Where individual meters have been installed, water usage has declined 10 to 40 percent. Explain that drop, referring to price and marginal utility.
Problem 7
Using the utility-maximization rule as your point of reference, explain the income and substitution effects of an increase in the price of product \(\mathrm{B}\), with no change in the price of product A.
Problem 8
A"mathematically fair bet" is one in which the amount won will on average equal the amount bet, for example, when a gambler bets, say, \(\$ 100\) for a 10 percent chance to win \(\$ 1,000(\$ 100=0.10 \times \$ 1,000)\). Assuming diminishing marginal utility of dollars, explain why this is not a fair bet in terms of utility. Why is it even a less fair bet when the "house" takes a cut of each dollar bet? So is gambling irrational?
Problem 9
Rank each of the following three gift possibilities in terms of how much utility they are likely to bring and explain your reasoning. A store-specific gift card worth \(\$ 15,\) a \(\$ 15\) item from that specific store, and \(\$ 15\) of cash that can be spent anywhere.
Problem 10
In what way is criminal behavior similar to consumer behavior? Why do most people obtain goods via legal behavior as opposed to illegal behavior? What are society's main options for reducing illegal behavior?
