Chapter 6: Q.5RQ (page 151)
Who determines how much utility an individual will receive from consuming a good?
The individual themselves determines how much utility an individual will receive through the consumption of a commodity.
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The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called “closing the Washington Monument.” When an agency faces the unwelcome prospect of a budget cut, it may decide to close a high-visibility attraction enjoyed by many people (like the Washington Monument). Explain in terms of diminishing marginal utility why the Washington Monument strategy is so misleading. Hint: If you are really trying to make the best of a budget cut, should you cut the items in your budget with the highest marginal utility or the lowest marginal utility? Does the Washington Monument strategy cut the items with the highest marginal utility or the lowest marginal utility?
As a general rule, is it safe to assume that a change in the price of a good will always have its most significant impact on the quantity demanded of that good, rather than on the quantity demanded of other goods? Explain.
Think back to a purchase that you made recently. How would you describe your thinking before you made that purchase?
Would you expect total utility to rise or fall with additional consumption of a good? Why?
Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a round-trip cost of \(2 in gasoline money. He has a total of \)10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in Table 6.6, figure out the points on Jeremy’s consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point.
| Round Trips | Total Utility | Phone Minutes | Total Utility |
| 0 | 0 | 0 | 0 |
| 1 | 80 | 20 | 200 |
| 2 | 150 | 40 | 380 |
| 3 | 210 | 60 | 540 |
| 4 | 260 | 80 | 680 |
| 5 | 300 | 100 | 800 |
| 6 | 330 | 120 | 900 |
| 7 | 200 | 140 | 980 |
| 8 | 180 | 160 | 1040 |
| 9 | 160 | 180 | 1080 |
| 10 | 140 | 200 | 1100 |
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