Factors Effecting Organizational Behavior
QUESTIONS FOR PRACTICE AND REVIEW
TOPIC 2 – THEORY OF CONSUMER BEHAVIOR
1) The price of DVDs (D) is Rs 200 and the price of CDs (C ) is Rs 100. Ajay has a budget of Rs 1000 to spend on the two goods. Suppose that he has already bought one DVD and one CD. In addition, there are 3 more DVDs and 5 more CDs that he would really like to buy.
a. Given the above prices and income, draw his budget line on a graph with CDs on the horizontal axis.
b. Considering what he has already purchased and what he still wants to purchase, identify the three different bundles of CDs and DVDs that he could choose. Assume that he cannot purchase fractional units.
2) Suppose that Sammy and Grace spend their incomes on two goods, Food (F) and Clothing (C ). Sammy’s preferences are represented by the utility function U(F,C) = 10FC. Grace’s preferences are represented by the utility function U(F,C) = 0.20F2C2.
a. With food on the horizontal axis and clothing on the vertical axis, identify on a graph the set of points that give Sammy the same level of utility as the bundle (10,5). Do the same for Grace on a separate graph.
b. Do you think Sammy and Grace have the same or different preferences? Explain.
3) Consumers in Chandigarh pay twice as much for grapes as they do for mangoes. However, grapes and mangoes are the same price in Kolhapur. If consumers in both cities maximize utility, will the marginal rate of substitution of mangoes for grapes be the same for consumers in both cities? If not, which will be higher?
4) Shiv receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, price of food is Rs 20 per unit and price of clothing is Rs 100 per unit, and Shiv’s weekly income is Rs 500.
a. What is Shiv’s marginal rate of substitution of food for clothing when utility is maximized? Explain.
b. Suppose instead that Shiv is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would his
TOPIC 2 – THEORY OF CONSUMER BEHAVIOR
1) The price of DVDs (D) is Rs 200 and the price of CDs (C ) is Rs 100. Ajay has a budget of Rs 1000 to spend on the two goods. Suppose that he has already bought one DVD and one CD. In addition, there are 3 more DVDs and 5 more CDs that he would really like to buy.
a. Given the above prices and income, draw his budget line on a graph with CDs on the horizontal axis.
b. Considering what he has already purchased and what he still wants to purchase, identify the three different bundles of CDs and DVDs that he could choose. Assume that he cannot purchase fractional units.
2) Suppose that Sammy and Grace spend their incomes on two goods, Food (F) and Clothing (C ). Sammy’s preferences are represented by the utility function U(F,C) = 10FC. Grace’s preferences are represented by the utility function U(F,C) = 0.20F2C2.
a. With food on the horizontal axis and clothing on the vertical axis, identify on a graph the set of points that give Sammy the same level of utility as the bundle (10,5). Do the same for Grace on a separate graph.
b. Do you think Sammy and Grace have the same or different preferences? Explain.
3) Consumers in Chandigarh pay twice as much for grapes as they do for mangoes. However, grapes and mangoes are the same price in Kolhapur. If consumers in both cities maximize utility, will the marginal rate of substitution of mangoes for grapes be the same for consumers in both cities? If not, which will be higher?
4) Shiv receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, price of food is Rs 20 per unit and price of clothing is Rs 100 per unit, and Shiv’s weekly income is Rs 500.
a. What is Shiv’s marginal rate of substitution of food for clothing when utility is maximized? Explain.
b. Suppose instead that Shiv is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would his