1. Assume the price of pizza is R2.00 and the price of Beer is R1.00 and that at your current levels of consumption, the Marginal Utility from pizza is 10 and the Marginal Utility from beer is 6. Considering the above, can you increase total utility by buying more beer and less pizza? 2. The price of steak is R7 per kilo, and the price of chicken is R2 per kilo. Your mother currently receives a marginal utility of 14 from consuming steak this week and 6 from consuming chicken this week. The marginal utility of chicken is therefore less than that of steak. To maximise utility, does this imply that your mother should buy less chicken this week? Explain. 3. The price of water, which is essential to life, is low, while the price of a diamond, which is not essential to life, is high. Briefly explain how this paradox of value is resolved.
