A2 Practice Questions
7.1 Utility
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Individuals typically purchase goods and services with the anticipation of deriving satisfaction, which is commonly referred to as utility. It is essential to differentiate between total utility, representing overall satisfaction, and marginal utility, indicating the additional satisfaction gained from each unit consumed.
How can total utility be defined?
Can you provide an example to illustrate the concept of total utility?
What factors contribute to an individual's total utility when consuming goods and services?
How would you describe marginal utility and its significance in consumption?
What is the difference between total utility and marginal utility?
If I gain 15 units of satisfaction from consuming 5 candies and 19 units of satisfaction from consuming 6 candies, then my marginal utility from the 6th candy is ...
Total utility will fall whenever
A. marginal utility is falling.
B. marginal utility is rising.
C. marginal utility has reached a maximum.
D. marginal utility is zero.
E. marginal utility is negative.In what ways does the level of total utility impact an individual's purchasing decisions?
How can understanding total and marginal utility assist businesses in catering to consumer preferences?
To understand the connection between utility and consumer decision-making, it is helpful to make the assumption that utility can be quantified. Therefore, a hypothetical measurement unit for satisfaction known as 'utils' is introduced.
9. Table 7.11 shows the total utility that Sammy derives from visits to the botanical park per week.
a. Fill in the figures for marginal utility.
b. Draw a graph of the figures for total and marginal utility.
c. Assume that Sammy now has to study for an exam. As a result her marginal utility for each visit halves. What is his total utility now for:
(i) 2 visits?
(ii) 5 visits?
(iii) 8 visits?
To determine their optimal level of consumption, individuals aiming to maximize their self-interest (known as 'rational' behavior) will assess the relationship between the expected marginal utility of a good and its price. This assessment involves perceiving the monetary value of marginal utility, i.e., how much an additional unit of the good is worth to them. If the marginal utility surpasses the price, rational consumers will choose to either buy more. Conversely, if the price outweighs the marginal utility, rational consumers will decide to buy less their current level of consumption. In essence, the rational consumer's objective is to maximize their total consumer surplus (TCS) derived from the good.
10. Diminishing marginal utility implies that total utility:
A. decreases at a decreasing rate.
B. decreases at a constant rate.
C. increases at a constant rate.
D. increases at an increasing rate.
E. increases at a decreasing rate.
Instead of solely considering the quantity of a specific good that individuals will purchase, it is more meaningful to explore how people will distribute their incomes among different goods. Rational decision-making involves comparing the marginal utility of each good in relation to its price.
11. If at the current level of consumption MUA/PA < MUB/PB, to maximise total utility the consumer should
A. buy more A relative to B.
B. buy more A relative to B
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