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 these 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 is more even.  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.

4.  Suppose you plan to buy a brand new car for $25,000.  When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it.  The dealer says it was returned by someone after driving it only 100 miles.  You like the color and ask if you can buy it.  The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold.  You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it.  But you notice that other people (the “market”) would not pay full price for a returned car.  Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?

4.  Suppose you plan to buy a brand new car for $25,000.  When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it.  The dealer says it was returned by someone after driving it only 100 miles.  You like the color and ask if you can buy it.  The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold.  You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it.  But you notice that other people (the “market”) would not pay full price for a returned car.  Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?