1. David enjoys diving and windsurfing. He obtains the following utility from each of these sports:
Hours per month Utility from diving Utility from windsurfing
1 60 20
2 110 38
3 150 53
4 180 64
5 200 70
6 206 75
7 211 77
8 215 82
9 218 84
1.1 Draw graphs showing David’s utility from diving and windsurfing.
1.2 Compare the two utility graphs, what can you say about David’s preferences?
1.3 Draw graphs showing David’s marginal utility from diving and windsurfing.
1.4 Compare the two marginal utility graphs, what can you say about David’s preferences?
1.5 David has $35 to spend. If the equipment for diving and windsurfing cost $10 per hour and $5 per hour respectively, how long will David choose to dive and to windsurf?
2. Sam’s and Susan’s demand for swimming is given in the following table:
Price Sam’s Demand Susan’s demand ($ per hour) (hours per month) (hours per month)
12.50 8 7
15.00 6 6
17.50 4 5
20.00 2 4
2.1 If swimming costs $17.50 per hour, what is Sam’s consumer surplus?
2.2 If swimming costs $12.50 per hour, what is Susan’s consumer surplus?
2.3 If Sam and Susan are the only two consumers in that market, draw the market demand curve.
Consumer Theory - Discussion Topic Questions:
(I) Compare and contrast the following:
(a) the consequences of the income effect of a drastic fall in food prices
(b) the consequences of a rise in incomes when prices are constant.
(II) A recent study estimated that a 20% increase in wages will cause the average person to reduce the time that he or she spends sleeping by about 1%. Interpret this in terms of the substitution effect. Would you expect to find an income effect on the amount of time that a person spends sleeping?
