S.
Klepper, Economics
73-100, Fall 2008
Consumers
allocate their budget so that the utility of the marginal unit of food consumed
divided by its price equals the utility of the marginal unit of clothing
consumed divided by its price. Since the
prices of food and clothing are equal, this implies that the utility from the
marginal unit of food must equal the utility from the marginal unit of
clothing. Moreover, since the marginal
unit of food and clothing yield the same utility, if the consumer were given an
additional $2 the consumer would be indifferent between buying another unit of
food and another unit of clothing.
The
only thing that can be inferred about utility pertains to the marginal unit of
food and clothing. We cannot infer
anything about units other than the marginal unit. Therefore, we cannot tell anything about the
total utility the consumer gets from the 30 units of food versus the 20 units
of clothing. Consequently, even though
the consumer buys 50% more units of food than clothing, it does not follow that
the consumer gets more total utility from the 30 units of food than the 20
units of clothing. Similarly, even
though the consumer spends more on food than clothing, it does not follow that
the consumer gets more total utility from the 30 units of food than the 20
units of clothing.
Based
on this description, the answers to the individual questions are:
_____1. False
_____2. False
_____3. True
_____4. False
_____5. False