Modern Principles Microeconomics,
6th Edition by Tyler Cowen
Complete Chapter Solutions Manual
are included (Ch 1 to 25)
** Immediate Download
** Swift Response
** All Chapters included
,Table of Contents are given below
Chapter 1. The Big Ideas
Chapter 2. The Power of Trade and Comparative Advantage
Chapter 3. Supply and Demand
Chapter 4. Equilibrium
Chapter 5. Elasticity and Its Applications
Chapter 6. Taxes and Subsidies
Chapter 7. The Price System: Signals, Speculation, and Prediction
Chapter 8. Price Ceilings and Floors
Chapter 9. International Trade
Chapter 10. Externalities: When the Price is Not Right
Chapter 11. Costs and Profit Maximization Under Competition
Chapter 12. Competition and the Invisible Hand
Chapter 13. Monopoly
Chapter 14. Price Discrimination and Price Strategy
Chapter 15. Oligopoly and Game Theory
Chapter 16. Networks, Platforms, and the Economics of "Free Goods"
Chapter 17. Monopolistic Competition and Advertising
Chapter 18. Labor Markets
Chapter 19. Public Goods and the Tragedy of the Commons
Chapter 20. Political Economy and Public Choice
Chapter 21. Economics, Ethics, and Public Policy
Chapter 22. Managing Incentives
Chapter 23. Stock Markets and Personal Finance
Chapter 24. Asymmetric Information: Moral Hazard and Adverse Selection
Chapter 25. Consumer Choice
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all chapters
are included in this document. (Complete Chapters included Ch25-1)
CHAPTER 25
Modern Principles of Economics:
Consumer Choice
Facts and Tools
1. The following table shows the marginal utility a consumer receives from the weekly consumption of
streaming movie rentals and Thai takeout meals. One streaming movie rental costs $5, and Thai
takeout costs $10 per meal. Suppose this consumer is currently (for some reason) eating Thai
takeout 10 times per week and is spending all of their $100 income, so that they have no money left
over for movie rentals. Is the consumer maximizing utility?
Streaming Marginal
Marginal Utility Thai Takeout Meals
Movies Utility
1 50 1 50
2 30 2 45
3 20 3 40
4 15 4 35
5 10 5 30
6 8 6 25
7 6 7 20
8 4 8 15
9 2 9 10
10 1 10 5
Solution
1. The first movie would provide 50 utils of utility, and the second movie would provide 30 utils of utility.
So if the consumer gave up one Thai meal, the consumer would lose 5 utils of utility but gain 50 + 30 =
80 utils from the two movies they could consume. It is clear then that the consumer is not maximizing
utility. Another way to illustrate this is to note that the first movie has MU/$ = 50/$5 = 10 and that the
tenth Thai meal has MU/$ = 5/$10 = 0.5. The “bang for the buck” is very far from being equal—and that
condition is necessary for utility maximization.
2. Imagine that for the past two years, you’ve consumed only two goods: lattes and scones. As you’re
probably aware, prices tend to go up over time. If the price of your latte increased from $3 to $4.50
over the last two years and the price of scones increased from $2.50 to $3.75, what impact would
this have on your budget constraint if your $240 weekly take-home pay didn’t change at all over the
same two-year period? Draw both budget constraints on the same set of axes. What if you were
able to negotiate a raise to $360 per week? Draw this final budget constraint on the same set of
, 2
axes as the first two. How does your final budget constraint compare to your original budget
constraint from two years ago?
Solution
2. When the two prices change, both go up by 50%, so the price ratio (the slope of the budget
constraint) would not change. Rather, the budget constraint would shift inward, as shown in the
diagram below. After the raise is negotiated, income rises by 50% as well, so the budget constraint
would return to the original position.
3. You learned in the chapter that the process of utility maximization involves a comparison of
marginal utilities per dollar, which are calculated as marginal utility divided by price. Consider two
goods that most people consume at least some of during their lives: apples and cars.
a. If utility maximization was only about marginal utility (not marginal utility per dollar), which
good (apples or cars) would consumers want to consume? Would they ever consume the other
good?
b. If utility maximization was only about price (as opposed to marginal utility divided by price),
which good (apples or cars) would consumers want to consume? Would they ever consume the
other good?
c. Given your answers to parts a and b, and given the observation that some people eat apples and
drive cars, explain why utility maximization involves a comparison of marginal utility divided by
price, and not just one or the other.
Solution
3. a. If utility was all that mattered, it would be more likely that consumers would consume cars since a
car provides more utility than an apple. Only after consuming many, many cars (which would reduce the
marginal utility of a car) would a consumer ever consider consuming an apple.
b. If price were all that mattered, consumers would consume only apples since apples will always be
much cheaper than cars.
c. Sometimes apples are a good purchase because, although they do not provide very much marginal
utility, they likewise do not cost very much. Sometimes cars are a good purchase because, although they
6th Edition by Tyler Cowen
Complete Chapter Solutions Manual
are included (Ch 1 to 25)
** Immediate Download
** Swift Response
** All Chapters included
,Table of Contents are given below
Chapter 1. The Big Ideas
Chapter 2. The Power of Trade and Comparative Advantage
Chapter 3. Supply and Demand
Chapter 4. Equilibrium
Chapter 5. Elasticity and Its Applications
Chapter 6. Taxes and Subsidies
Chapter 7. The Price System: Signals, Speculation, and Prediction
Chapter 8. Price Ceilings and Floors
Chapter 9. International Trade
Chapter 10. Externalities: When the Price is Not Right
Chapter 11. Costs and Profit Maximization Under Competition
Chapter 12. Competition and the Invisible Hand
Chapter 13. Monopoly
Chapter 14. Price Discrimination and Price Strategy
Chapter 15. Oligopoly and Game Theory
Chapter 16. Networks, Platforms, and the Economics of "Free Goods"
Chapter 17. Monopolistic Competition and Advertising
Chapter 18. Labor Markets
Chapter 19. Public Goods and the Tragedy of the Commons
Chapter 20. Political Economy and Public Choice
Chapter 21. Economics, Ethics, and Public Policy
Chapter 22. Managing Incentives
Chapter 23. Stock Markets and Personal Finance
Chapter 24. Asymmetric Information: Moral Hazard and Adverse Selection
Chapter 25. Consumer Choice
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all chapters
are included in this document. (Complete Chapters included Ch25-1)
CHAPTER 25
Modern Principles of Economics:
Consumer Choice
Facts and Tools
1. The following table shows the marginal utility a consumer receives from the weekly consumption of
streaming movie rentals and Thai takeout meals. One streaming movie rental costs $5, and Thai
takeout costs $10 per meal. Suppose this consumer is currently (for some reason) eating Thai
takeout 10 times per week and is spending all of their $100 income, so that they have no money left
over for movie rentals. Is the consumer maximizing utility?
Streaming Marginal
Marginal Utility Thai Takeout Meals
Movies Utility
1 50 1 50
2 30 2 45
3 20 3 40
4 15 4 35
5 10 5 30
6 8 6 25
7 6 7 20
8 4 8 15
9 2 9 10
10 1 10 5
Solution
1. The first movie would provide 50 utils of utility, and the second movie would provide 30 utils of utility.
So if the consumer gave up one Thai meal, the consumer would lose 5 utils of utility but gain 50 + 30 =
80 utils from the two movies they could consume. It is clear then that the consumer is not maximizing
utility. Another way to illustrate this is to note that the first movie has MU/$ = 50/$5 = 10 and that the
tenth Thai meal has MU/$ = 5/$10 = 0.5. The “bang for the buck” is very far from being equal—and that
condition is necessary for utility maximization.
2. Imagine that for the past two years, you’ve consumed only two goods: lattes and scones. As you’re
probably aware, prices tend to go up over time. If the price of your latte increased from $3 to $4.50
over the last two years and the price of scones increased from $2.50 to $3.75, what impact would
this have on your budget constraint if your $240 weekly take-home pay didn’t change at all over the
same two-year period? Draw both budget constraints on the same set of axes. What if you were
able to negotiate a raise to $360 per week? Draw this final budget constraint on the same set of
, 2
axes as the first two. How does your final budget constraint compare to your original budget
constraint from two years ago?
Solution
2. When the two prices change, both go up by 50%, so the price ratio (the slope of the budget
constraint) would not change. Rather, the budget constraint would shift inward, as shown in the
diagram below. After the raise is negotiated, income rises by 50% as well, so the budget constraint
would return to the original position.
3. You learned in the chapter that the process of utility maximization involves a comparison of
marginal utilities per dollar, which are calculated as marginal utility divided by price. Consider two
goods that most people consume at least some of during their lives: apples and cars.
a. If utility maximization was only about marginal utility (not marginal utility per dollar), which
good (apples or cars) would consumers want to consume? Would they ever consume the other
good?
b. If utility maximization was only about price (as opposed to marginal utility divided by price),
which good (apples or cars) would consumers want to consume? Would they ever consume the
other good?
c. Given your answers to parts a and b, and given the observation that some people eat apples and
drive cars, explain why utility maximization involves a comparison of marginal utility divided by
price, and not just one or the other.
Solution
3. a. If utility was all that mattered, it would be more likely that consumers would consume cars since a
car provides more utility than an apple. Only after consuming many, many cars (which would reduce the
marginal utility of a car) would a consumer ever consider consuming an apple.
b. If price were all that mattered, consumers would consume only apples since apples will always be
much cheaper than cars.
c. Sometimes apples are a good purchase because, although they do not provide very much marginal
utility, they likewise do not cost very much. Sometimes cars are a good purchase because, although they
