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Product Demand: The Ooinehold

•Households try to choose the combinations of goods that will make them
as well off as possible, given their
incomes, tastes. and the prices of the

•’f'be Concept of Uti1ity:

Utility is the economist's term for ' satisfaction.

" Economics assumes that households behave rationally and that
they seek to maximize utility through their purchases of goods and
services.
pit Jr si " gon" si ii i
. . .. . - .. .' - .. -

Ordiast fitifiry

can be measured assumes that the household can

numerically, and utilities
of different persons and
households can be
compared and added.
pmg••
only tell whethRr a change in
consumption iriakes it better or
worse off. Ordinal utilities of
different households cannot be
compared or added together.

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Total Utili TU

•is simply the satisfaction that the household experiences as a result of

consuming a combination of goods. the utility of a good to a specific
household depends on the household’s tastes or preferences

•ln the theory of demand, we assume that tastes are given. Tastes or
preferences determine the relationship between goods consumed and the
household's total utility.

is the rate at which total utility changes as the quantity of a good

consumed changes. lf consumption changes by one unit, marginal utility
is the change in total utility which results from that one-unit change.

MU——L Ttf L Q

where EU is the change in utility and HQ is the change m the quantity

of the guod consumed by the household.
The Law of

The principle of diminishing marginal utility states that the marginal

utility of a good declines as more of it is consumed.

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MCO questions
1.-------------•-determine the relationship between goods consumed and the
household's total utility.

A Ut t B.Supply
C.Deniand D.Tastes or preferences

2. is tbe total beoefita persozt gets ffioæ tbe coosuzaption of' goods

A) Marginal utility ._ B) Total uiilitv

Cl Indifference curve D) ChilRgR in total utiliiy

3. Which of the following defines marginal utility?

A. the change in total utility divided by the price of a product
B. the maximum amount of satisfaction from consuming a product
C. the total satisfaction received from consuming as much of the product that is
available for consumption
D. the additional satisfaction received from cuosumin
prnacdt

4. Total utilité ciirve

(a) Always rises (b) First falls then rises
[c ) Always falls

5. Total utilité is maximum when

(b) Marginal utilité is maximum

(c) Marginal utility increases (d) Average utility is maximum

6. Marginal utility is

(a) Always zero (b) lncreases at a difilinishinBô te

The utilit derived from last unit (d) All the above

7. Total utility is

(a) The sum tntal nÎ marginal utilities

•
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tb) Entire utility derived from whole consumpiion

(c} Increases at a diminishing rnte fd) All the above

8. When Total utility is increasing at an decreasing rate, marginal utility is

(a) Constani (b) Negative

idI Decreasin r

9A cuasuaier reacbes equñibriuzzt wbeo

inal utility is e rice (b) Marginal utility greater than price

(c j Marginal utility less than price (d) Total utility is equal to price

1o."£ltiiity or satisfaction is s subjective cnncept; therefore ii cnuld only be

ranked“. The statement supports

(a› Cardînal utiliiy theorist fhi Ordînal utilitv theorist

(c) Behavioral theorist nf the firm (d) None of the above

11. Which of the following statement is PALSE with regard to marginal

utility

(a) Mar•pinal utility is the utility derived from last unit (b) As consumptinn
increases Marginal utility goes on diminishing

[c ) At saturation point niarp•inal utility is Zero

12. The table above shows Joey's the totai utility from the consumption of
pairs of sneakers, expressed in utils (u).

fiof pdn of sweaters Jaey't totzl utility fn vt¡Isj

1 1%
2 l75

3 2t5

S 235
6 235

How much additional utility will the 4th pair of shoes provide foey?

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a)215 utils c)1 utils
d)230 utilx e)— 15 utils
13. 'The table above shows Karina's marginal uñlity she experiences
when she visits Wild Waves Water Park. Row many visits provides
Karina the

n)g b)7 c)2 e)1

True oz faise
I.As the quantity consumed of a good increases, the marginal utility from
consuming it decreases. TRUE

2. Total utility increases by increasing amount before reaching the maximum

arnouni . FALSE(decreasing amount)

3. The total amount nf satisfaction snmeone enjoys from consuming a specific

quantity of goods is called totai utility .TRUE

4. Two people who consume precisely the same quantity of a particular

good will enjoy the same total utility levels. FALSE(not the same level)

5. In chnnsing tn purchase a combination of gonds, consumers must consider

prices rind not jusi utilities because goods are not free. TRUE

6. When marginal utility is positive ,Toial utility increases TRUE.

7. When marginal utility is negative ,Total utility increasRs .FALSE(total

B.When marginal utility exceeds price ,consumer demand more .TRUE

9. Marginal uiiliiy mny never be negative. FALSE( marginal utity is positive

till it reach zero ,the marginal utility decreases and siart to be negative)

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