1a. The table shows Amy’s consumption possibilities.
Coffee Soda (cups per week) (cans per week) 60
52 44 36 28 1 10 0 12
. 1b. Figure 11.2 shows Amy’s consumption possibilities, which are her budget
line.
. 1c. Amy can afford to buy 7 cans of soda and 2 cups of coffee.
. 1d. Amy cannot afford to buy 7 cups of coffee and 2 cans of soda.
. 1e. The relative price of a cup of coffee is the number of cans of soda that Amy
must forgo to get 1 cup of coffee. The relative price of a cup of coffee
equals the price of a cup of coffee divided by the price of a can of soda,
which is $2 a cup of coffee ÷ $1 per a of soda = 2 cans of soda per cup of
coffee.
. 1f. The relative price of a can of soda is the
number of cups of coffee that
Amy must forgo
to get 1 can of soda. The relative price of a can
of soda
equals the price of a can of soda
divided by the price of a cup of coffee,
which is $1 a can of soda ÷ $2 a cup of coffee = 1/2 of a cup of coffee per
can of soda.
2a. The table shows Amy’s new consumption possi‐ bilities.
Coffee Soda (cups per week) (cans per week) 40
33 26 19 0 12
278 Part 4 . A CLOSER LOOK AT DECISION MAKERS
. 2b. Figure 11.3 shows Amy’s old budget line, which is her old consumption
possibilities, and her new budget line, which is her new consumption
possibilities.
. 2c. If Amy buys 6 cans of soda, she can buy 2 cups of coffee.
. 2d. The relative price of a cup of coffee is the number of cans of soda that Amy
must forgo to get 1 cup of coffee. The relative price of a cup of coffee
equals the price of a cup of coffee divided by the price of a can of soda,
which is $3 a cup of coffee ÷ $1 a can of soda = 3 cans of soda per cup of
coffee. The relative price of a cup of coffee has in‐ creased
. 2e. The relative price of a can of soda has
decreased. The relative price of a
can of
soda is the number of cups of coffee that Amy must forgo to get 1
can of soda. The relative price of a can of soda equals the price of a can of
soda divided by the price of a cup of coffee, which is $1 a can of soda ÷ $3
a cup of coffee = 1/3 of a cup of coffee per can of soda.
. 7a. The total utility from consuming 3 cakes and 2 dishes of pasta is 61 units of
utility.
. 7b. The marginal utility from the third cake is 7 units of utility.
. 7c. The marginal utility per dollar spent on the third cake is (7 ÷ $4), which is
1 3/4 units of utility per dollar spent.
. 7d. The marginal utility from the second dish of pasta is 16 units of utility.
. 7e. The marginal utility per dollar spent on the second dish of pasta is (16 ÷
$8), which is 2 units of utility per dollar spent.
. 7f. Martha is maximizing her utility because she is allocating her entire
budget and the marginal utility per dollar spent on cake (2 units of utility
per dollar spent) equals the marginal utility per dollar spent on pasta (2
units of utility per dollar spent).
. 8a. If the price of a dish of pasta falls to $4, Martha buys 2 cakes and 4 dishes
of pasta. This combination maximizes Martha’s utility because it allocates
her entire income and equates her marginal utility per dollar spent for both
goods.
. 8b. When the price of a dish of pasta is $8 (and the price of a cake is $4), Mar‐
tha buys 2 dishes of pasta. So, one point is a price of $8 for a dish of pasta
and a quantity of 2 dishes. When the price of a dish of pasta is $4 (and the
price of a cake is $4), Martha buys 4 dishes of pasta. So, another point is a
price of $4 for a dish of pasta and a quantity of 4 dishes.
. 8c. Martha’s demand for pasta is unit elastic over the price range between $8
and $4 because her total expenditure on pasta does not change when the
price falls.
. 8d. When the price of a cake is $4, the price of a dish of pasta is $8, and Mar‐
tha has $40 to spend, she will buy 4 cakes and 3 dishes of pasta. This
combination maximizes Martha’s utility because it allocates (spends) her
entire budget and equates the marginal utility per dollar spent on cake to the
marginal utility per dollar spent on pasta, with both equal to 1 1/2 units of
utility per dollar.