Tutorial
Tutorial 3
1. Are there any goods or services where consumers do not experience diminishing marginal utility? Explain? (4 marks) 2. The table below shows the quantity and total utility obtained from consumption of good X. Fill in the blanks for marginal utility. (4 marks)
Quantity | Total Utility | Marginal Utility | 1 | 40 | | 2 | 75 | | 3 | 105 | | 4 | 130 | | 5 | 150 | |
(b) If price per unit of X is RM25, calculate the quantity of X that will maximise the utility of this consumer? (4 marks) 3. How do you define utility? What are the approaches in analyzing utility? (4 marks) 4. Based on the concept of cardinal theory explain how consumer can achieve equilibrium? (6 marks) 5. Which gamble would you be more likely to accept, a 60:40 chance of gaining or losing £10 000, or a 40:60 chance of gaining or losing £1? Explain why. (4 marks)
6. Distinguish between marginal consumer surplus and consumer surplus? (4marks)
7. Why do you think it could be difficult to estimate exactly what people would pay to buy a certain good, and estimate the utility from consumption of it? (10 marks)
Case Study
Rachel is a student attending a university, and she takes a meal during her lunch time. Assume that she has three options of where to eat: The University Refectory, a nearby pub or a nearby restaurant. Apart from the price she takes in to account the quality of food, and the pleasantness of the surrounding she chose to eat. Now based on this information, sketch her indifference map for the two characteristics. Now make your own assumptions, on locations, price, budget, characteristics, and draw a weekly efficiency frontier, and mark her optimum level of consumption. Now illustrate the following a. A rise in the price of the local pub, but no change in the price of meals at the other two locations b. A shift in Rachel’s taste towards food quality relative to pleasantness c. The refectory is now furbished and
1. Are there any goods or services where consumers do not experience diminishing marginal utility? Explain? (4 marks) 2. The table below shows the quantity and total utility obtained from consumption of good X. Fill in the blanks for marginal utility. (4 marks)
Quantity | Total Utility | Marginal Utility | 1 | 40 | | 2 | 75 | | 3 | 105 | | 4 | 130 | | 5 | 150 | |
(b) If price per unit of X is RM25, calculate the quantity of X that will maximise the utility of this consumer? (4 marks) 3. How do you define utility? What are the approaches in analyzing utility? (4 marks) 4. Based on the concept of cardinal theory explain how consumer can achieve equilibrium? (6 marks) 5. Which gamble would you be more likely to accept, a 60:40 chance of gaining or losing £10 000, or a 40:60 chance of gaining or losing £1? Explain why. (4 marks)
6. Distinguish between marginal consumer surplus and consumer surplus? (4marks)
7. Why do you think it could be difficult to estimate exactly what people would pay to buy a certain good, and estimate the utility from consumption of it? (10 marks)
Case Study
Rachel is a student attending a university, and she takes a meal during her lunch time. Assume that she has three options of where to eat: The University Refectory, a nearby pub or a nearby restaurant. Apart from the price she takes in to account the quality of food, and the pleasantness of the surrounding she chose to eat. Now based on this information, sketch her indifference map for the two characteristics. Now make your own assumptions, on locations, price, budget, characteristics, and draw a weekly efficiency frontier, and mark her optimum level of consumption. Now illustrate the following a. A rise in the price of the local pub, but no change in the price of meals at the other two locations b. A shift in Rachel’s taste towards food quality relative to pleasantness c. The refectory is now furbished and