ECON 1101
Semester 2 - 2025
Tutorial 2
Instructions
Please prepare for the upcoming tutorial by attempting Questions 1, 2, 3, 4A,
and 4B before the session. Bring your hand-written solution attempt to the tutorial.
Your tutor will review your attempt at the beginning of the session.
Note: there is a ’Time-permitting’ question in this tutorial set. This will
not be a common occurrence. It means you are unlikely to get through all of this
questions in the tutorial, probably just part a) and b). We will upload a discussion
of how to solve the parts not covered at the end of week 3.
Questions
1. Paul farms Wagyu beef cows for sale and personal consumption. He claims
“The Law of Demand does not hold for me because when the market price of
Wagyu beef rises, I eat more of it”. Is Paul correct? Would the Law of Demand
hold in this case?
2. You currently consume one coffee and one salad per day. Your marginal utility
for an additional coffee at this point is 6 and your marginal utility for an
additional salad at this point is 10. If coffee costs $3 per cup and salads are $7
per salad answer the following questions:
a) Assuming you have more money to spend – should you buy another coffee
or another salad? Explain your answer.
b) What if the price of coffee were $6 per cup? Explain.
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3. At $2 per bottle, James buys 10 bottles of coke per month. His demand curve
is linear, where a $1 change in price leads to a 2 bottle change in consumption.
a) Assume the price is $2 per bottle, and James buys as much as he wants.
Calculate James’s Total Benefit from his coke consumption.
b) Calculate the dollar value of his Consumer Surplus.
c) This month when James went to the shop they only had 8 bottles of coke
for sale. Calculate his Consumer Surplus for this month’s coke consump-
tion.
4. [Time-permitting] James has $75 to spend on two goods – sushi and flowers.
Sushi costs $3 per roll and flowers cost $5 per pot.
a) Graph James’s budget constraint over the two goods. Make sure you label
all points.
b) What is the opportunity cost of a sushi roll? What is the opportunity
cost of a flower pot? Explain.
c) If the price of flowers increases to $10 per pot, what happens to James’s
budget constraint? Explain and graph. Is he better or worse off? Explain.
What happens to the opportunity cost of each of the goods? Explain.
d) If his income decreases to only $30 to spend on sushi and flowers (and
the prices are $3/sushi roll and $5/flower pot), what happens to James’s
budget constraint? Explain and graph. Is he better or worse off? Explain.
What happens to the opportunity cost of each of the goods? Explain.
e) His total benefit (TB) from consuming both of the goods is given in the
table below. With a budget of $30 and Ps = $3 and Pf =$5, what is
James’s optimal consumption bundle? Explain. Why is 6 rolls of sushi
and 2 pots of flowers not his optimal bundle? Explain.
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Table 1: James’s total benefit from sushi and flowers
Quantity of sushi TB from sushi Quantity of flowers TB from flowers
1 15 1 20
2 28 2 37
3 40 3 52
4 51 4 64
5 60 5 73
6 67 6 79
7 72 7 84
8 75 8 87
9 76 9 89
10 76 10 90