Changes

2. Suppose you see a sleek-looking used sports car and you immediately want to buy it.  You think to yourself, "I can paint that car and fix it up so it looks brand new!"  You like it so much that you would very work hard for a year and save up $10,000 to buy it.  You ask the owner how much he'd sell the car for, and he says $9,000.  If you buy it for $9,000, then what is your "consumer surplus"?  What does that concept mean?

2. Suppose you see a sleek-looking used sports car and you immediately want to buy it.  You think to yourself, "I can paint that car and fix it up so it looks brand new!"  You like it so much that you would very work hard for a year and save up $10,000 to buy it.  You ask the owner how much he'd sell the car for, and he says $9,000.  If you buy it for $9,000, then what is your "consumer surplus"?  What does that concept mean?

3.  Suppose your favorite hobbies are reading books and hiking, and imagine that they have the following values for marginal utility.  The first hour that you hike gives you lots of utility:  10 units.  But as you start to tire, you enjoy and benefit from it less.  The next hour of hiking is worth only 8 units of utility (in other words, it has a marginal utility of 8 units rather than 10), and the next hour of hiking is worth only 5 units, and then 3, then 1, and then zero for the next hours, in that order.  Your marginal utility for reading books does not decline so quickly.  In the first hour, reading a book gives you utility of 6 units; the next hour is worth 5 units; the next hour is worth 4 units; and then 3, 2, 1 and 0.  Suppose that you have 5 extra hours today.  How should you spend those hours on hiking and reading in order to maximize your utility, and what will be your total utility for those 5 hours?  Explain your answer.

3.  Suppose your favorite hobbies are reading books and hiking, and imagine that they have the following values for marginal utility.  The first hour that you hike gives you lots of utility:  10 units.  But as you start to tire, you enjoy and benefit from it less.  The next hour of hiking is worth only 8 units of utility (in other words, it has a marginal utility of 8 units rather than 10), and the next hour of hiking is worth only 5 units, and then 3, then 1, and then zero for the next hours, in that order.  Your marginal utility for reading books does not decline so quickly.  In the first hour, reading a book gives you utility of 6 units; the next hour is worth 5 units; the next hour is worth 4 units; and then 3, 2, 1 and 0.  Suppose that you have 5 extra hours today.  How should you spend those hours on hiking and reading in order to maximize your utility, and what will be your total utility for those 5 hours?  Explain your answer.