00:01
So let's go over this question.
00:08
So we need to find a bundle where marginal utility of good f over price of good f is equal to marginal utility of the candy bar over price of the candy bar.
00:25
We also need to make sure that it's within her budget.
00:28
So her budget is $20.
00:37
So marginal utility is the difference between the total benefit of the previous quantity and the current quantity.
00:46
The price of f is $2 and the price of the candy bar is $4.
00:56
So we know that the number on top here should be twice the amount as the number on top here.
01:04
So if we look at the chart, the quantity of 4, the total benefit is 100 and then for the third one, it's 90.
01:15
So the difference in the marginal utility for the fourth unit of good f is 10.
01:21
So then for the third unit of candy bars, we have 140.
01:27
Well, for the second unit, we have 120.
01:30
So then the difference is 20.
01:33
So you could see that these two are equal.
01:37
So therefore, these would be an optimal bundle.
01:44
So basically then we need to multiply by the price.
01:51
So we do 4 of good f times 2 is 8 total and then $4 times 3 candy bars gives you 12 total.
02:00
If you add them together, you'll get 20.
02:02
So that's within the budget.
02:03
So then we found the optimal bundle.
02:09
Then we now need to calculate her consumer surplus from the fourth candy bar.
02:19
Consumer surplus is equal to the maximum price she's willing to pay minus the price that she actually pays.
02:40
So for the fourth candy bar, we look at her total benefit.
02:49
That gives you the maximum price she's willing to pay because basically total benefit is representing the price on the demand curve.
03:01
So then for the price actually paid, we have 4 candy bars multiplied by the price of candy bars, which was $4.
03:13
So we have 152 minus 16.
03:44
So her weekly income is decreasing to 18.
03:49
Can she buy 5 units of good f for 2 candy bars? so 5 units of good f.
04:04
And now we need to multiply by the price.
04:07
So that would cost her $10 total.
04:11
And she wants to buy 2 candy bars.
04:17
So we need to multiply by the price of candy bars and she gets 8.
04:22
So it looks like this is within her budget.
04:27
So yes, she could purchase them.
04:33
Suppose the candy bars are produced in a perfectly competitive market and the price of sugar increases.
04:40
If candy bars are a normal good, will the quantity of candy bars that will maximize her total benefit increase, decrease, or stay the same? so the price of sugar goes up.
05:03
Therefore, cost of production goes up...