Department of Natural Resource Economics College of Agricultural and Marine Sciences Sultan Qaboos University INTRODUCTION TO AGRICULTURAL ECONOMICS (CAMS 2003) Homework 1: Consumer Behavior Theory1 Learning Objective: This homework will enable you to understand, both Consumer Behavior theories, Cardinal and Ordinal Utility theories. You would understand, the derivation of demand functions originating from consumer’s preference (expressed as a Utility Function or Indifference Curves), given prices of commodities and income of consumer. You are advised to first do the estimations and draw the graphs etc., manually using a calculator. This is because at exams you will solve problems manually using calculators. You could use word “shape” facility to draw graph free hand. You may if you wish use Excel spreadsheets to answers and submit. Please contact Ms. Amani Al Alawi for clarifications on the homework. 1. Table 1, gives Ahmed’s Total Utility curve for chicken burgers consumed per week. The column 3 is to estimate Marginal Utility as required for in question 1.2. Table 1. Ahmed’s Total Utility Curve for Chicken Burgers. (1) No of Burgers 1 2 3 6 12 24 (2) Total Utility (Baisa) 300 580 840 1500 2220 3060 1 (3) Marginal Utility (Baisa) The exercise is adopted from Penson, John. B., Oral Capps, Jr. and C. Parr Rosson III. (2002) Introduction to Agricultural Economics, Prentice Hall. 1 1.1. Graph the Total Utility curve. Utility (Baisa) Ahmed's Total Utility for Burgers 3500 3000 2500 2000 1500 1000 500 0 1 2 3 6 12 24 No of Burgers 1.2. Graph the Marginal Utility Curve. Marginal Utility Uitility (Baisa) 300 250 200 150 100 50 0 2 3 6 12 No of Chicken Burgers 1.3. Explain, why is the marginal utility curve declining with increased consumption of burgers? 2 24 1.4. If the price of a burger was 120 Baisa how many burgers would Ahmed purchase? ………………………. 1.5. If the price of a burger was 280 Baisa how many burgers would Ahmed purchase? ……………………… 1.6. Using the answers for 1.4 and 1.5 draw Ahmed’s demand curve for chicken burgers. Ahmed's Demand for Burgers Price Baisa/Burger 300 250 200 150 100 50 0 2 3 6 No of Chicken Burgers 3 12 24 2. Ahmed likes to consume Chicken Burgers with a drink of Coca~Cola. Ahmed’s Indifference Curves on consumption of Coca-Cola and Chicken Burgers per week is given in Figure 1. Figure 1. Ahmed’s Indifference Curves on Coca~Cola and Chicken Burgers No of Cans of Coca~Cola Ahmed's Indiference Curves 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 No of Chicken Burgers 2.1. Ahmed has the choice of getting 12 cans of Coca-Cola and 3 Chicken Burgers or 3 cans of Coco-Cola and 12 Chicken Burgers. Which combination will Ahmed choose? Explain why he would choose this combination over the other. 4 2.2. Which combination would Ahmed choose if he could have either 12 cans of Coca-Cola and 3 Chicken Burgers or 6 cans of Coca~Cola and 9 Chicken Burgers? Explain the reasons for Ahmed’s choice. 3.1. Given below is Mohammed’s Indifference curves for Chicken Burger and Coca~Cola. Note that Mohammed’s preference is different to Ahmed’s preference. If Mohammed’s budget per week is 12 OR and the price of chicken burger was 1.200 OR and a can of Coca~Cola was 1.200 OR, graph Mohammeds’s budget line and find out the combination of Coca~Cola and Chicken Burgers Mohammed would purchase. Coca-Cola ………….. Burgers …………… Mohammed’s Indiference Curves No of Cans of Coca~Cola 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 No of Chicken Burgers 5 3.2. If the price of Chicken Burgers decreased to 0.5 OR and the price of Coca~Cola remain the same as 1.200 OR/ can and Mohammed’s budget per week also remain the same as 12 OR/ week, draw the new budget line and find out the combination of Coca~Cola and Chicken Burgers Mohammed would purchase. Coca-Cola …………………. Burgers ……………………. Mohammed's Indiference Curves No of Cans of Coca~Cola 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 No of Chicken Burgers 6 3.3. Draw Mohammed’s demand curve for Chicken Burgers. Please draw the graph using a scale of your choice and label the diagram. 7
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