Question

In: Economics

Let Px = $10 per unit, Py = $25 per unit and B = $200. Draw...

Let Px = $10 per unit, Py = $25 per unit and B = $200. Draw the budget line using these data. Explain the concepts of total utility, marginal utility and the Law of Diminishing Marginal Utility.

Solutions

Expert Solution

  • The term utility simply means the satisfaction that is derived by the person by consuming any good or service
  • so the total utility is the sum of all the utility or the given satisfaction that is received by any consumer by consuming the good or the service
  • In simple words marginal utility is the additional utility that is derived by consuming 1 extra good or service
  • utility is generally measured in utils and it differs from person to person
  • Accurately it cannot be measured
  • marginal utility always declines for each successive quantity of consumption for example- any person like any good then then first consumption will give the maximum utility and as the consumption rises the marginal utility decreases and it even becomes zero then negative
  • It is also called law of diminishing marginal utility

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