Consumer Choice

Problem # 1 - Consumer Choice & Individual Demand - The chart to the right shows the marginal utility that Cookie Monster gets from consuming cookies and milk.

A. Cookie Monster has an income of $13. Cookies have a price of $1 and milk has a price of $3. How many cookies and how much milk will Cookie Monster buy? How much utility will he get from his purchases?

B. Suppose the price of cookies go up to $2. How will this affect amount of cookies and milk Cookie Monster purchases? How will this affect his total utility?

C. How does the change in the price of cookies show Cookie Monster's demand curve for cookies?

D. Suppose Cookie Monster's income goes up by $4. How will that change the amount of cookies and milk Cookie Monster buys? Are cookies and milk normal or inferior goods?

Problem # 2 - Individual & Market Demand - The chart to the right shows the individual demand curves for three people who buy a good in a market and the supply curve for the market.

A. What is the market demand curve?

B. What will be the equilibrium price and quantity in this market?

C. How much will each person buy in this market?

An improvement in technology shifts the market supply curve. The new supply curve is QS = 7P.

D. What is the new equilibrium price and quantity in this market?

E. How much will each person buy in this market?

F. Use the information about the quantity sold in the market at the two different prices to calculate the elasticity of the market.

G. Use the information about the quantity purchased by each person in the market at the two different prices to calculate each person's elasticity. How does the market elasticity compare to the elasticity of each individual?