Marginal utility is the additional satisfaction derived from the consumption of an extra unit of a
commodity. It is measured by the derivative of the total utility function, that is, change in total utility
per unit change in the quantity (of a commodity) consumed:
MU = dTU/dQ where
MU: Marginal utility
TU: Total utility
Q: Quantity consumed.
This additional satisfaction (marginal utility) decreases as successive units of a commodity are consumed –
thus diminishing marginal utility.
Marginal utility falls under the cardinalist approach of consumer behavior which assumes that consumer
satisfaction (utility) is measurable in terms of money the consumer is willing and able to pay for a commodity.
Marginal utility varies from one individual to another e.g. a person in North Eastern province of Kenya will
find a glass of cold juice very satisfying relative to a person in a cold area like Limuru or Kericho.
Diminishing marginal utility is based on the following assumptions:
1. Utility is measurable
2. Constant marginal utility of money
3. Normality of goods and rationality of the consumer
4. Successive units are homogeneous
5. Continuity in consumption of the successive units.
Wilfykil answered the question on February 6, 2019 at 06:32
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Given the following table: If there is a successful advertising campaign that convinces consumers to buy more of commodity Y, what would the effect of this be on consumption of commodities X and Z?
(Solved)
If there is a successful advertising campaign that convinces consumers to buy more of
commodity Y, what would the effect of this be on consumption of commodities X and Z?
Date posted:
February 6, 2019
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Answers (1)
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Given the following table: What type of goods are X, Y, Z & W and why?
(Solved)
What type of goods are X, Y, Z & W and why?
Date posted:
February 6, 2019
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Answers (1)
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With the aid of diagrams, explain the importance of the concept of elasticity of supply.
(Solved)
With the aid of diagrams, explain the importance of the concept of elasticity of supply.
Date posted:
February 6, 2019
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Answers (1)
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Given that:
, Compute the point elasticity of demand and the point elasticity of supply at the equilibrium position.
(Solved)
Compute the point elasticity of demand and the point elasticity of supply at the equilibrium position.
Date posted:
February 6, 2019
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Answers (1)
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Given that: , Identify which of the two functions is a demand and a supply function
(Solved)
Identify which of the two functions is a demand and a supply function
Date posted:
February 6, 2019
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Answers (1)
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The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to
advise on the ticket – pricing strategy. As a basis...
(Solved)
The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to
advise on the ticket – pricing strategy. As a basis for your recommendations you consider historical
ticket sales data which seems to suggest the following ticket – sales elasticities:
Own – price elasticity = -0.05
Refreshment price elasticity = -0.12
Nairobi Population elasticity = +0.65
Advertising elasticity = +0.70
The managing director is contemplating a moderate increase in the advertising budget in order to
increase revenue. Is this a good idea? Explain.
Date posted:
February 4, 2019
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Answers (1)
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The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to
advise on the ticket – pricing strategy. As a basis...
(Solved)
The managing director of My Kori-Lima Movie Theater Ltd has hired you as a consultant to
advise on the ticket – pricing strategy. As a basis for your recommendations you consider historical
ticket sales data which seems to suggest the following ticket – sales elasticities:
Own – price elasticity = -0.05
Refreshment price elasticity = -0.12
Nairobi Population elasticity = +0.65
Advertising elasticity = +0.70
The managing director is contemplating a moderate increase in ticket prices in order to increase revenue.
Explain whether this is a good idea
Date posted:
February 4, 2019
.
Answers (1)
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Given that:
QX = 9 – ½ P2
QY = 8P + ½ P2
Identify which of the two functions is a demand and a supply function
(Solved)
Given that:
QX = 9 – ½ P2
QY = 8P + ½ P2
Identify which of the two functions is a demand and a supply function
Date posted:
February 4, 2019
.
Answers (1)
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State the main determinants of elasticity of demand
(Solved)
State the main determinants of elasticity of demand
Date posted:
February 4, 2019
.
Answers (1)
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The demand for a commodity is five units when the price is sh. 1,000 per unit. When price per unit falls to Sh. 600 the...
(Solved)
The demand for a commodity is five units when the price is sh. 1,000 per unit. When price per unit falls to Sh. 600 the demand rises to six units.
Compute the point and arc elasticity of demand
Date posted:
February 4, 2019
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Answers (1)
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Discuss any three practical applications of the concept of elasticity of demand in management and economic
policy decision making
(Solved)
Discuss any three practical applications of the concept of elasticity of demand in management and economic
policy decision making
Date posted:
February 4, 2019
.
Answers (1)
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Use the data in the table below to compute income elasticity of demand through the arc elasticity
method:
(Solved)
Use the data in the table below to compute income elasticity of demand through the arc elasticity
method:
Date posted:
February 4, 2019
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Answers (1)
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Define the term cross price elasticity of demand and clearly explain its value for substitutes and
complementary commodities
(Solved)
Define the term cross price elasticity of demand and clearly explain its value for substitutes and
complementary commodities
Date posted:
February 4, 2019
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Answers (1)
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The demand for a commodity is twenty units when the prevailing market price equals eighty
shillings per unit. However, when the price per unit rises to...
(Solved)
The demand for a commodity is twenty units when the prevailing market price equals eighty
shillings per unit. However, when the price per unit rises to one hundred shillings, the quantity
demanded rises to thirty units.
Required:
Calculate both arc and point elasticities of this commodity
Date posted:
February 4, 2019
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Answers (1)
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Explain why elasticity of supply for agricultural commodities is low.
(Solved)
Explain why elasticity of supply for agricultural commodities is low.
Date posted:
February 4, 2019
.
Answers (1)
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Define elasticity of supply and briefly explain any five factors that influence the elasticity of supply.
(Solved)
Define elasticity of supply and briefly explain any five factors that influence the elasticity of supply.
Date posted:
February 4, 2019
.
Answers (1)
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Discuss the importance of price elasticity of demand and cross elasticity of demand in management and economic policy decision-making.
(Solved)
Discuss the importance of price elasticity of demand and cross elasticity of demand in management and economic policy decision-making.
Date posted:
February 4, 2019
.
Answers (1)
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Briefly discuss the factors which affect the own price elasticity of demand
(Solved)
Briefly discuss the factors which affect the own price elasticity of demand
Date posted:
February 4, 2019
.
Answers (1)
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What are the major consequences of each of the price control measures?
(Solved)
What are the major consequences of each of the price control measures?
Date posted:
February 4, 2019
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Answers (1)
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With the aid of well-labeled diagrams, distinguish between price floors and
price ceilings.
(Solved)
With the aid of well-labeled diagrams, distinguish between price floors and
price ceilings.
Date posted:
February 4, 2019
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Answers (1)