Concept explainers
Subpart (a):
Total utility and marginal utility .
Subpart (a):
Explanation of Solution
The total utility can be calculated by adding up the marginal utilities and the marginal utility can be calculated by subtracting the total utility at the previous unit consumed from the total utility at the present consumption.
The total utility and the marginal utility at 1 unit consumption are 10 and the marginal utility from the 2nd unit is 8. Thus, the total utility at the 2nd unit can be thus calculated by adding up the marginal utilities as follows:
Thus, the total utility at the 2nd unit of consumption is 18 utils.
The total utility at 2nd unit is calculated as 18. The total utility at the 3rd unit is given as 25. Thus, the marginal utility of the 3rd unit can be calculated as follows:
Thus, the marginal utility of the 3rd unit is 7 utils.
Similarly, the total utility at the 4th unit is 30 and the 3rd unit is 25. The marginal utility of the 4th unit can be calculated using the same equation as follows:
Thus, the marginal utility of the 4th unit is 5 utils.
The total utility at the 4th unit is given as 30 utils. The marginal utility from the 5th unit is given as 3. So, the total utility from the 5th unit can be calculated by adding these two together as follows:
Thus, the total utility of 5 units is 33 utils.
The total utility of 6 units is given as 34. The total utility of 5 units is calculated as 33. Thus, the marginal utility of the 6th unit can be calculated as follows:
Thus, the marginal utility of 6th unit is 1 util.
Thus, the table can be filled as follows:
| Units consumed | Total utility | Marginal utility |
| 0 | 0 | 0 |
| 1 | 10 | 10 |
| 2 | 18 | 8 |
| 3 | 25 | 7 |
| 4 | 30 | 5 |
| 5 | 33 | 3 |
| 6 | 34 | 1 |
The marginal utility starts from 10 and it starts to decline from 10 to 1, at the end. The marginal benefit thus shows a decline. Since the total utility is the addition of marginal utilities, because of the decline in the marginal utility, the total utility increases but at a diminishing rate.
Concept introduction:
Utility: It can be described as the benefit or the satisfaction that the consumption of a good or service provides to the consumer.
Total utility: It is the summation of all utilities derived, by the consumer, from the consumption of the individual units of a specific good or service.
Marginal utility: It is the extra satisfaction that a consumer derives from the consumption of an additional unit of the specific good or service.
Subpart (b):
Total utility and marginal utility.
Subpart (b):
Explanation of Solution
The rational consumers in the economy try to maximize the total utility that they derive from the consumption of the goods and services. Thus, the decline in the marginal utility is not the reason which determines the quantity demanded. Thus, the individuals will try to maximize the total utility and thus, the statement is not agreeable. The marginal utility beyond the 1st unit may be sufficiently great in terms of price. As a result, people will demand beyond the 1st unit. Thus, the statement is not agreeable.
Concept introduction:
Utility: It can be described as the benefit or the satisfaction that the consumption of a good or service provides to the consumer.
Total utility: It is the summation of all utilities derived, by the consumer, from the consumption of the individual units of a specific good or service.
Marginal utility: It is the extra satisfaction that a consumer derives from the consumption of an additional unit of the specific good or service.
Subpart (c):
Total utility and marginal utility.
Subpart (c):
Explanation of Solution
People compare the level of utility that they receive from the consumption of the goods and services with their respective prices. When the price of the commodity or service is higher than the total utility that the consumer receives from the very first unit of consumption, the rational consumer may decide not to purchase the item. Thus, the statement is agreeable.
Concept introduction:
Utility: It can be described as the benefit or the satisfaction that the consumption of a good or service provides to the consumer.
Total utility: It is the summation of all utilities derived, by the consumer, from the consumption of the individual units of a specific good or service.
Marginal utility: It is the extra satisfaction that a consumer derives from the consumption of an additional unit of the specific good or service.
Want to see more full solutions like this?
Chapter 7 Solutions
ECONOMICS W/CONNECTPLUS PKG>IC<
- 22. Peanut butter (PB) sells for 10 dollars per pound and Oysters (O) sell for 50 dollars perpound. Suppose Pat buys 5 pounds of peanut butter and one pound of oysters each month.With this consumption bundle, his MRSP B,O = 3. Which of the following is true (assumingPat’s preferences satisfy all the basic assumptions of consumer theory)?(a) Pat could increase his utility by buying more oysters and less peanut butter.(b) Pat could increase his utility by buying more peanut butter and less oysters.(c) Pat could increase his utility by buying more peanut butter and more oysters.(d) Pat could increase his utility by buying less peanut butter and less oysters.arrow_forwardYou are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (price–quantity-demanded table) for X.arrow_forwardYou are choosing between two goods, X and Y, and your marginal utility from each is as shown in the following table. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (a table showing prices and quantities demanded) for X.arrow_forward
- Suppose that Omar’s marginal utility for cups of coffee is constant at 1.5 utils per cup no matter how many cups he drinks. On the other hand, his marginal utility per doughnut is 10 for the first doughnut he eats, 9 for the second he eats, 8 for the third he eats, and so on (that is, declining by 1 util per additional doughnut). In addition, suppose that coffee costs $1 per cup, doughnuts cost $1 each, and Omar has a budget that he can spend only on doughnuts, coffee, or both. How big would that budget have to be before he would spend a dollar buying a first cup of coffee?arrow_forwardYou are choosing between two goods, X and Y, and your marginal utility from each is shown in the following table. Units of X MUx Units of Y MUy 1 10 1 8 2 8 2 7 3 6 3 6 4 4 4 5 5 3 5 4 6 2 6 3 a. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? ______units of X and ______units of Y b. What total utility will you realize? ______utils c. Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? _____units of X and ______units of Y d. Using the two prices and quantities for X, complete the table to derive the demand schedule (a table showing prices and quantities demanded) for X. Instructions: Start with the highest price first Price of X Quantity Demanded of X $ $arrow_forwardJohn likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils. Does John show diminishing marginal utility for Coke, or does he show increasing marginal utility for Coke? Supposethat John has $3 in his pocket. If Cokes cost $1 each and John is willing to spend one of his dollars on purchasing a first can of Coke, would he spend his second dollar on a Coke, too? What about the third dollar? If John’s marginal utility for Coke keeps on increasing no matter how many Cokes he drinks, would it be fair to say that he is addicted to Coke?arrow_forward
- A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend. Product X Product Y Product Z Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ 1 42 NA 1 14 NA 1 32 NA 2 82 4 2 26 6 2 60 3.5 3 118 3.6 3 36 5 3 84 3 4 148 3 4 44 4 4 100 2 5 170 2.2 5 50 3 5 110 1.25 6 182 1.2 6 54 2 6 116 0.75 7 182 _0 7 56.4 _1.2 7 120 _0.5_ Why would the consumer not be maximizing utility by purchasing 2 units of X, 4 units of Y, and 1 unit of Z?arrow_forwardA consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend. Product X Product Y Product Z Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ 1 42 NA 1 14 NA 1 32 ___NA__ 2 82 4 2 26 6 2 60 __3.5_ 3 118 3.6 3 36 5 3 84 __3___ 4 148 3 4 44 4 4 100 __2___ 5 170 2.2 5 50 3 5 110 _1.25___ 6 182 1.2 6 54 2 6 116 _0.75__ 7 182 0 7 56.4 1.2 7 120 _0.5_ How many units of X, Y, and Z will the consumer buy when maximizing utility and spending all…arrow_forwardAssuming that the equation ?(?, ? , ?2,, … . . , ??) = 0 implicitly defines a utility function ? = ƒ(?1, ?2,, … . . , ??): Find the expressions for 6? , 6? , 6?3, and 6?4. 6?2 6?? 6?2 6?? Interpret their respective economic meanings. Now, assume the utility function is ?(?, ?) = ?√?. Does the consumer believe that more is better for each good? Do the consumer’s preferences exhibit a diminishing marginal utility of ?? Is the marginal utility of ? diminishing?arrow_forward
- 1. Does a dollar given to a rich person raise the rich person’s total utility more than a dollar given to a poor person raises the poor person’s total utility? 2. This week you have gone to two parties. Assume the total utility you gained from these parties is 100 utils. Then you go to a third party, and your total utility rises to 110 utils. What is the marginal utility of the third party attended per week? Given the law of diminishing marginal utility, what will happen to total utility and marginal utility when you go to a third party this week? 3. Suppose you consume 3 pounds of beef and 5 pounds of pork per month. The price of beef is $1.50 per pound, and pork is $2.00 per pound. Assuming you have studied economics and achieved consumer equilibrium, what is the ratio of the marginal utility of beef for the marginal utility of pork? 4. Explain the relationship between the law of diminishing marginal utility and the law of demand. 5. Using the marginal utility…arrow_forwardJohn likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils. Does John show diminishing marginal utility for Coke or does he show increasing marginal utility for Coke? Suppose that John has $3 in his pocket. If Cokes cost $1 each and John is willing to spend one of his dollars on purchasing a first can of Coke, would he spend his second dollar on a Coke, too? What about the third dollar? If John’s marginal utility for Coke keeps on increasing no matter how many Cokes he drinks, would it be fair to say that he is addicted to Coke? *use tables and/or graphs if possible, please original workarrow_forwardJohn’s preferences for Orange (O) and lemons (L) are represented by the funtion U(O, L)= O+2L. The oranges cost £2 and the lemons £1. Given that John’s monthly income is £30 answer the following questions: What type of goods are oranges and lemons for John? What is the proportion to which John is willing to exchange Oranges for Lemons? Illustrate and solve graphically John’s utility maximization problem. If his income increases every month by £10, how will John’s consumption choice be affected? Illustrate graphically the income expansion path and the Engel curve for each good. How will an increase in the price of Lemons to £6 affect John’s optimal consumption choice? (John’s income is £30) Graph John’s demand curve for each good. Assume that John wins a voucher of £20, redeemable only in Oranges. How would this affect John’s utility? (Assume that prices and income are as described initially) Assume that John is presented with two options: an Orange voucher of £20 or just £6 to spend…arrow_forward
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax