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Explain why a rational consumer who has diminishing marginal utility for a good would not consume an additional unit when it generates negative marginal utility, even when that unit is free.
In the following two examples, find all the consumption bundles that lie on the consumer’s budget line. Illustrate these consumption possibilities in a diagram, and draw the budget line through them.
The consumption bundle consists of movie tickets and buckets of popcorn. The price of each ticket is $10.00, the price of each bucket of popcorn is $5.00, and the consumer’s income is $20.00. In your diagram, put movie tickets on the vertical axis and buckets of popcorn on the horizontal axis.
The consumption bundle consists of underwear and socks. The price of each pair of underwear is $4.00, the price of each pair of socks is $2.00, and the consumer’s income is $12.00. In your diagram, put pairs of socks on the vertical axis and pairs of underwear on the horizontal axis.
In Table 51.3 you can see that the marginal utility per dollar spent on clams and the marginal utility per dollar spent on potatoes are equal when Sammy increases his consumption of clams from 3 pounds to 4 pounds and his consumption of potatoes from 9 pounds to 10 pounds. Explain why this is not Sammy’s optimal consumption bundle. Illustrate your answer using a budget line like the one in Figure 51.3.