Page 563 - Krugmans Economics for AP Text Book_Neat

in general, why the individual demand curve obeys the law of demand. Marginal analy-
sis adds clarity to the utility-maximizing behavior of individuals and explains more
precisely how an increase in price leads to less marginal utility per dollar and therefore
a decrease in the quantity demanded.

Module 51 AP Review
Solutions appear at the back of the book. Section 9 Behind the Demand Curve: Consumer Choice

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

Tackle the Test: Multiple-Choice Questions
1. Generally, each successive unit of a good consumed will cause 4. A consumer is spending all of her income and receiving 100
marginal utility to utils from the last unit of good A and 80 utils from the last unit
a. increase at an increasing rate. of good B. If the price of good A is $2 and the price of good B is
b. increase at a decreasing rate. $1, to maximize total utility the consumer should buy
c. increase at a constant rate. a. more of good A.
d. decrease. b. more of good B.
e. either increase or decrease. c. less of good B.
d. more of both goods.
2. Assume there are two goods, good X and good Y. Good X costs
e. less of both goods.
$5 and good Y costs $10. If your income is $200, which of the
following combinations of good X and good Y is on your 5. The optimal consumption bundle is always represented by a
budget line? point
a. 0 units of good X and 18 units of good Y a. inside the consumer’s budget line.
b. 0 units of good X and 20 units of good Y b. outside the consumer’s budget line.
c. 20 units of good X and 0 units of good Y c. at the highest point on the consumer’s budget line.
d. 10 units of good X and 12 units of good Y d. on the consumer’s budget line.
e. all of the above e. at the horizontal intercept of the consumer’s budget line.
3. The optimal consumption rule states that total utility is
maximized when all income is spent and
a. MU/P is equal for all goods.
b. MU is equal for all goods.
c. P/MU is equal for all goods.
d. MU is as high as possible for all goods.
e. The amount spent on each good is equal.

module 51 Utility Maximization 521