EWU Spring Quarter 2002 ECON 100 Section 01 General Education Economics

EWU – ECON 450 – Public Finance - Briand Handout -- Review: Utility and Choice

Utility and Choice. Part I.

Gabrielle has to decide how to best allocate her $10 dollars budget. She can spend it on used CDs, gas, or discount movie theater tickets. Used CDs are $2 a piece, gas is $1 a gallon, and discount movie theater tickets go for $3 a piece.

CD (P=$2) Gas (P=$1/gallon) Movie (P=$3/ticket) Units MU MU/P Units MU MU/P Units MU MU/P 1 200 100 1 200 200 1 150 50 2 98 49 2 150 150 2 90 30 3 50 25 3 50 50 3 60 20 4 10 5 4 30 30 4 30 10 5 0 0 5 0 0 5 9 3 6 -70 -35 6 -300 -300 6 0 0 7 -200 -100 7 -700 -700 7 -6 -2

Steps Choices Decision Remaining Budget 1st purchase 1st CD MU/P= 1st Gas MU/P= 1st Movie MU/P=

2nd purchase CD MU/P= Gas MU/P= Movie MU/P=

3rd purchase CD MU/P= Gas MU/P= Movie MU/P=

4th purchase CD MU/P= Gas MU/P= Movie MU/P=

6th purchase CD MU/P= Gas MU/P= Movie MU/P= Utility and Choice. Part II.

The price of used CDs has decreased to $1 a piece. How should Gabrielle allocate her $10 budget now?

CD (P=$1) Gas (P=$1/gallon) Movie (P=$3/ticket) Units MU MU/P Units MU MU/P Units MU MU/P 1 200 … 1 200 200 1 150 50 2 98 … 2 150 150 2 90 30 3 50 … 3 50 50 3 60 20 4 10 … 4 30 30 4 30 10 5 0 … 5 0 0 5 9 3 6 -70 … 6 -300 -300 6 0 0 7 -200 … 7 -700 -700 7 -6 -2

Steps Choices Decision Remaining Budget 1st purchase 1st CD MU/P= 1st Gas MU/P= 1st Movie MU/P=

2nd purchase CD MU/P= Gas MU/P= Movie MU/P=

3rd purchase CD MU/P= Gas MU/P= Movie MU/P=