Question

Answer the questions below in a separate file or scan your pencil and paper answers and then attach the file.

Quantity of Tea	P=$1 MU/$1	P=$.50 MU/$1	Qty. of Muffins	P=$2 MU/$1
0	0	0	0	0
1	10	20	1	15
2	8	16	2	11
3	6	12	3	7
4	4	8	4	5
5	2	4	5	3
6	0	0	6	0

A)  Using the above table, determine the number of cups of tea and the number of muffins that this  consumer will purchase when the price of tea is $1 per cup with a budget of $6.

B) Using the above table, find the number of cups of tea and the number of muffins that this consumer will purchase when the price of tea is $.50 per cup with a budget of $6.

C) Using your answers from parts ‘a’ and ‘b’ draw the graph of this consumer’s demand curve for  tea

Answer 1

A.

When the price of a cup of tea is $1.

A product will be purchased first that gives maximum marginal utility per dollar.

On this basis,

The first purchase = Muffins ($2 spent)

The second purchase = Muffins ($2 spent)

Third purchase = cup of tea ($1 spent)

The fourth purchase = cup of tea ($1 spent)

budget spent = 2+2+1+1 = $6

And 2 units of muffins and 2 units of the cup of tea is purchased.

B.

When the price of a cup of tea is $.5.

Four cup of tea and 2 units of muffins will be purchased under the $6 budget.

C.

The following demand curve for tea is prepared.

Price ($)	Demand of tea
0.5	4
1	2