© 2013 Pearson

Consumer Choice
and Demand
13
CHECKPOINTS

© 2013 Pearson
 Click on the button to go to the problem

Checkpoint 13.1 Checkpoint 13.2 Checkpoint 13.3

Clicker
Problem 1 version
Problem 1 Problem 1

Clicker Clicker
Problem 2 version Problem 2 version Problem 2

Problem 3 Problem 3

In the news In the news

© 2013 Pearson
 CHECKPOINT 13.1

Practice Problem 1
Jerry’s burger and magazine budget is $12 a week.

The price of a burger is $2, and the price of a magazine is

$4.

List the combinations of burgers and magazines that Jerry

can afford.

© 2013 Pearson
 CHECKPOINT 13.1
Solution
Jerry can afford the quantity of magazines (QM) and
the quantity of burgers (QB) such that total
expenditure equals $13.

That is, $4 x QM + $2 x QB = $12

The combinations are:

• 3 magazines and no burgers

• 2 magazines and 2 burgers
• 1 magazine and 4 burgers
• no magazines and 6 burgers.

© 2013 Pearson
 CHECKPOINT 13.1
Study Plan Problem
Jerry’s burger and magazine budget is $12 a
week. The price of a burger is $2, and the price
of a magazine is $4. Which combinations of
burgers and magazines can Jerry afford?
A. When Jerry buys 6 burgers a week, he cannot afford to buy a
magazine.
B. Jerry can afford to buy 2 burgers and 2 magazines a week.
C. When Jerry spends all of his budget on magazines, he buys 3
magazines a week.
D. Jerry can afford to buy 3 burgers and 3 magazines a week.
E. Options A, B and C are correct.

© 2013 Pearson
 CHECKPOINT 13.1

Practice Problem 2
Jerry’s burger and magazine budget is $12 a week.

The price of a burger is $2, and the price of a magazine is

$4.

What is the relative price of a magazine? Explain your

answer.

© 2013 Pearson
 CHECKPOINT 13.1

Solution
The relative price of a magazine is the number of burgers
that Jerry must forgo to get 1 magazine.

The relative price of a magazine equals the price of a

magazine divided by the price of a burger.

The price of a magazine is $2 and the price of a burger is

$2, so Jerry must forgo 2 burgers to get a magazine.

The relative price of a magazine equals 2 burgers.

© 2013 Pearson
 CHECKPOINT 13.1

Study Plan Problem

Jerry’s burger and magazine budget is $12 a week.
The price of a burger is $2, and the price of a
magazine is $4. The relative price of a magazine is
_______.

A. $2.00
B. 0.50 magazine per burger
C. 2.00 burgers per magazine
D. 2.00 magazines per burger
E. 0.50 burger per magazine

© 2013 Pearson
 CHECKPOINT 13.1

Practice Problem 3
Jerry’s burger and magazine budget is $12 a week.

The price of a burger is $2; the price of a magazine is $4.

Draw a graph of Jerry’s budget line with the quantity of

magazines plotted on the x-axis.

Describe how the budget line changes if, other things

remaining the same,

• The price of a magazine falls.

• Jerry’s budget for burgers and magazines increases.
© 2013 Pearson
 CHECKPOINT 13.1

Solution
The budget line is a straight
line from 6 burgers on the
y-axis to 3 magazines on the
x-axis.

© 2013 Pearson
 CHECKPOINT 13.1

With a lower price of a

magazine, Jerry can buy more
than 3 magazines.

With no change in the price of a

burger, he can still buy 6
burgers.

His budget line rotates outward

and becomes flatter.

© 2013 Pearson
 CHECKPOINT 13.1

With a bigger budget and no

change in the prices of the
goods, Jerry can buy more of
both goods.

His budget line shifts outward.

The slope of the budget line

does not change because the
prices do not change.

© 2013 Pearson
 CHECKPOINT 13.1

In the news
Paying for gas forces painful sacrifices
With the average price of gas hitting $3.70 a gallon, many
people cut back on other things, such as meal-to-go at the
grocery store and shopping.
Source: CNN Money, May 4, 2011
Consider Robyn who buys only two goods: gasoline and
meals-to-go. As the gas price rises, describe the change in
his consumption possibilities, the relative price of a meal-to-
go, and Robyn’s real income in terms of meals-to-go.

© 2013 Pearson
 CHECKPOINT 13.1

Solution
As the price of gasoline rises, Robyn’s consumption
possibilities shrink.

Her budget line rotates inward.

The relative price of a meal-to-go is the price of a

meal-to-go divided by the price of gasoline.

As the gas price rises, the relative price of a meal-

to-go will fall.

© 2013 Pearson
 CHECKPOINT 13.1

Robyn’s real income in terms of meals-to-go is the

number of meals-to-go that she can buy.

A rise in the price of gasoline does not change her

real income in terms of meals-to-go.

© 2013 Pearson
 CHECKPOINT 13.2

Practice Problem 1
The table shows Jerry’s total
utility from burgers and
magazines.

Calculate Jerry’s marginal utility

per dollar from burgers when
he buys 4 burgers a week.

Calculate Jerry’s marginal utility The price of a burger is $2,

per dollar from magazines the price of a magazine is $4,
and Jerry has $12 to spend.
when he buys 1 magazine a
week.
© 2013 Pearson
 CHECKPOINT 13.2

Solution
The marginal utility from the 4th
burger equals the total utility
from 4 burgers minus the total
utility from 3 burgers, which is
38 – 32 = 6 units of utility.

The marginal utility per dollar

from burgers equals the
The price of a burger is $2,
marginal utility of the 4th burger,
the price of a magazine is $4,
6 units, divided by the price of a and Jerry has $12 to spend.
burger, $2, which is 3 units of
utility per dollar.
© 2013 Pearson
 CHECKPOINT 13.2

The marginal utility from 1

magazine equals the total utility
from 1 magazine minus the total
utility from no magazines, which
is 100 – 0 = 100 units of utility.

The marginal utility per dollar

from magazines equals the
marginal utility of the first
magazine, 100 units, divided by The price of a burger is $2,
the price of a magazine, $4, the price of a magazine is $4,
and Jerry has $12 to spend.
which is 25 units of utility per
dollar.
© 2013 Pearson
 CHECKPOINT 13.2

Practice Problem 2
The table shows Jerry’s total
utility from burgers and
magazines.

If Jerry buys 4 burgers and 1

magazine a week, does he
maximize his total utility?

Which good, if any, must he buy The price of a burger is $2,

more of and which less of to the price of a magazine is $4,
and Jerry has $12 to spend.
maximize total utility? Explain
your answer.
© 2013 Pearson
 CHECKPOINT 13.2

Solution
If Jerry buys 4 burgers for $8 and
1 magazine for $4, he spends is
$12 budget.

His marginal utility per dollar from

burgers (3) is less than his
marginal utility per dollar from
magazines (25), so Jerry does not
maximize total utility. The price of a burger is $2,
the price of a magazine is $4,
He must buy fewer burgers and and Jerry has $12 to spend.
more magazines.

© 2013 Pearson
 CHECKPOINT 13.2
Study Plan Problem
If Jerry buys 4 burgers and 1 Jerry’s total utility from
burgers and magazines.
magazine a week, he ____
maximize his total utility.
A. does not; Jerry can maximize his utility
by buying more burgers and fewer
magazines
B. does
C. does not; Jerry can maximize his utility
by buying fewer burgers and more
magazines.
The price of a burger is $2, the
D. does not; Jerry can maximize his utility price of a magazine is $4, and
by spending all of his income on Jerry has $12 to spend.
burgers or by spending all of his
income on magazines
© 2013 Pearson
 CHECKPOINT 13.2

Practice Problem 3
The table shows Jerry’s
total utility from burgers and
magazines.

What quantities of burgers

and magazines in a week
maximize Jerry’s utility?
The price of a burger is $2,
the price of a magazine is $4,
and Jerry has $12 to spend.

© 2013 Pearson
 CHECKPOINT 13.2

Solution
Jerry maximizes utility if he buys 2
burgers and 2 magazines a week.

He spends $4 on burgers and $8

on magazines, which equals his
$12 budget.

His marginal utility for burgers is

24 – 14 = 10 units.
Dividing 10 units by $2 gives
5 units of utility per dollar.
© 2013 Pearson
The price of a burger is $2,
the price of a magazine is $4,
and Jerry has $12 to spend.
 CHECKPOINT 13.2

His marginal utility for magazines

is 120 – 100 = 20 units.

Dividing 20 units by $4 gives 5

units of utility per dollar.

Jerry’s marginal utility per dollar is

5 units per dollar for both goods
and utility is maximized.
The price of a burger is $2,
the price of a magazine is $4,
and Jerry has $12 to spend.

© 2013 Pearson
 CHECKPOINT 13.2

In the news
Pricier bread and cereal. Coming soon?
Surging wheat and corn prices could hit the items in your
grocery basket soon.
Source: CNN Money, May 19, 2011
How will the rise in the price of food change the budget line
and the quantity of food that Americans buy?

© 2013 Pearson
 CHECKPOINT 13.2

Solution
The budget line rotates inward. Consumers allocate
their budget between food (F) and non-food (N) items
such that (MUF/PF) = (MUN/PN).

As the price of food rises, (MUF/PF) falls.

So with (MUF/PF) < (MUN/PN), consumers will reallocate

their income to make (MUF/PF) rise and equal (MUN/PN).

To make ((MUF/PF) rise, the quantity of food bought

must decrease.

© 2013 Pearson
 CHECKPOINT 13.3

Practice Problem 1
In a year, Tony rents 500 DVDs at $3 each and pays $50
for 10,000 gallons of tap water. Tony is maximizing total
utility.

If Tony’s marginal utility from water is 0.5 units per gallon,

what is his marginal utility from a DVD rental?

Which good is the more valuable to Tony: water or DVDs?

Why?

© 2013 Pearson
 CHECKPOINT 13.3

Solution
Because Tony is maximizing his total utility:

Marginal utility of a DVD rental ÷ $3 = Marginal utility of

a gallon of water ÷ 0.5¢.

Marginal utility of a DVD rental = 600 x Marginal utility of

a gallon of water.

Marginal utility of a DVD rental = 600 x 0.5 = 300 units.

Most likely, the total utility from water is larger, so Tony

values water more than he values DVDs.
© 2013 Pearson
 CHECKPOINT 13.3

Practice Problem 2
Over the years, Americans have spent a smaller
percentage of income on food and a larger percentage on
cars.

Explain the paradox of value.

© 2013 Pearson
 CHECKPOINT 13.3

Solution
The average person has one car and the marginal utility
from driving the car exceeds the marginal utility from food.

While food is cheap and cars are expensive, consumers

allocate their income to make the marginal utility per
dollar equal for food and cars.

There is no paradox of value.

© 2013 Pearson