Suppose that as a consumer you have $34 per month to spend for munchies, either on pizzas which cost $6 each or on Twinkies which cost $4 each. Suppose further that your preferences are given by the following total utility table.
Count |
|||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | |
Pizzas | 60 | 108 | 138 | 156 | 162 | 166 | 166 |
Twinkies | 44 | 76 | 100 | 120 | 136 | 148 | 152 |
First, graph the budget constraint with Pizzas on the horizontal axis and Twinkies on the vertical axis. What are the intercepts and slope of the opportunity cost? Express the budget constraint as an algebraic equation for a line.
Next, use the utility maximizing rule to identify the consumer equilibrium, that is, what combination of Twinkies and Pizzas will maximize your total utility. Confirm that the consumer equilibrium generates the highest combined total utility of any affordable combination of goods.
Rubric
Criteria | Not Evident | Developing | Proficient | Distinguished | Weight |
Accurately graphs the budget constraint | 5 | ||||
Correctly identifies the intercepts | 1 | ||||
Expressed the budget constraint as an algebraic equation for a line | 2 | ||||
Graph the slope as the opportunity cost | 2 | ||||
Calculate the consumer equilibrium using the utility maximizing rule | 4 | ||||
Explain the process used to confirm that the consumer equilibrium generated the highest combined total utility of any affordable combination of goods | 5 | ||||
Articulation of response (citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas.) | 1 | ||||
Total: | 20 |