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Economics Question

  • 17-09-2012 10:31am
    #1
    Anyusername
    Closed Accounts Posts: 100 ✭✭


    Hi guys,


    Studying economics on my own and was wondering if someone could help me out with these 2. Prob simple but not sure about them.:o




    The table below illustrates the law of diminishing 
    marginal utility. Complete the table and state the point after which diminishing marginal utility sets in and explain your reasoning.

    No of units consumed 1.         2.        3.        4.       5.    6
    Total utility in units.   20.   45.    65.     80.   90. 95
    Margin utility in units.   0





    Suppose a person has €5 to spend on two goods: tea and biscuits, both costing €1 each. The marginal utility derived from both of these goods is shown in the table below.


    Unit of goods.   Mu of tea.   Mu of bis 
    1.                           10.                 12
    2.                            8.                  10
    3.                             6.                   8
    4.                            4.                    6
    5.                            1.                     3   
    Total utility = 29 utils.    Total utils =39

    How did they come up with figures in this one?
    I understand they just added up the figures for the total utils.




    Thanks so much for any help. :)


Comments

  • #2
    ACBBFG
    Registered Users Posts: 21 ✭ACBBFG


    Everything kind of went out of my head the second the LC ended so I can't help a huge amount but I know that the solution to the first is in a recent marking scheme in the short questions I think it's come up once or twice. It's something to do with taking the first figure from the second to get marginal utility. I do remember that it was easy once you've seen it once!

    Absolutely no memory of the second, sorry.


  • #3
    Fresco_007
    Registered Users Posts: 15 ✭Fresco_007


    First table

    No of units consumed 1. 2. 3. 4. 5. 6
    Total utility in units. 20. 45. 65. 80. 90. 95
    Margin utility in units. 20 25 20 15 10 5

    It sets in after the 3rd unit is consumed as the overall numer of utils falls by 5.

    Simple explaination: Utils is satisfaction. So the amount of satisfaction one gets from consuming a good. They just use the word 'utils'
    After the first is consmed satusfaction is 20, this goes up to 45(extra/marginal satisfaction is 20[45-20]) then 65(extra/marginal is 20[65-45]). Think of it like this, if you were hungry and ate a bar - the satisfaction you get from the first one will be higher than the satsfaction you get from the second and so on, eventually it will decline. Marginal utility is the extra satisfaction you get from consuming an extra unit.

    For the second: Those figures are just made up. They might ask you questions based on those figures. e.g. calculate the amount of each good the consumer will buy to achieve maximum utility. That's all.

    Hope this helps - All the best!


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