Economics Homework Four Answers - Student Thirteen

Economics Homework 4 Leonard G.

1.) A consumer’s overall satisfaction is expressed in economics as his total utility.

Excellent.

2.) If you buy the sports car for $9,000, and you were willing to pay $10,000 for it, you consumer surplus would be $10,000 - $9,000 = $1,000. The consumer surplus is the net benefit a consumer has from buying a good.

Correct.

3.) To maximize marginal utility in my day, I would spend the first two hours biking, starting my marginal utility at 18 units. Then, I would go home and spend the last three hours reading some of my favorite novels leaving me at a total marginal utility of 33 units. The reason I portioned my day is so that I could get the most out of my time; when my marginal utility would have decreased to 5 units marginal utility after two hours of biking, I switched over to reading which had 6 units of marginal utility and only declined at a rate of 1 unit per hour.

"hiking", not biking". Substitute in hiking for reading for the last hour and you can get to 34 units of utility. (Minus 1).

4.) If I relied on the “market” instead of my personal preferences when buying the car, I would ask the dealer for a lower price because the marginal utility of the car has decreased because it has been driven for 100 miles already.

Good.

5.) The shape of an indifference curve is perfectly straight for two goods that are perfect substitutes for each other because the consumer utility never changes when substituting one good for another. The utility is constant for perfect substitutes.

Correct.

6.) The “substitution effect” starts off when the price a good increases. Since people do not want to pay the higher price, the substitute of the item starts to sell more due to its lower price. As a result the demand for the good with the higher price decrease as the demand for the lower priced substitute increases.

Excellent.

7.) I believe that a successful free market is based on the foundation of charity because charity has an “unhindered” way of working and the free market literally has the same concept. The most successful free markets are the ones without hindrances such as transaction costs and government regulation

Terrific, may use as a model.

Fantastic answers. 69/70. Well done!--Andy Schlafly 15:28, 11 October 2009 (EDT)