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Principles Of Microeconomics

University: Open University Malaysia

PURPOSE

The purpose of this assignment is to enhance learners’ ability to apply the concept of utility to determine its consumer equilibrium.

REQUIREMENT

Select a product of your choice, describe and apply the concepts and theories of utility to the selected product to determine its consumer equilibrium. You have to obtain the market price of the selected product and assume the utils for EACH unit of product consumed. Using a suitable diagram in utility analysis to determine its consumer equilibrium.

Concepts of utility in context to the selected product

Partial Solution

A consumer has numerous want and not all the want can give the same level of utility because without the money the consumer will not be able to get the utility of a product. In this case, for example it can be said that a consumer is there who prefers to consume the soft drinks (Choudhari et al. 2015). In this case, the consumer will be able to get utility by consuming the more of more bottles of soft drinks. In this case, the consumer has the purchasing power to buy the soft drinks so it is clear to state the utility of the soft drinks in case of the consumer. In this case, the total utility of the soft drinks will be the summation of the satisfaction of the consumer that the consumer gets from the soft drinks. In this regard, it can be said that after consuming the certain number of bottles of soft drinks the marginal utility will reduce. In this case, the marginal utility means the additional utility that will be gained by the consumer by consuming one additional unit of soft drink. In this context, the total utility is the summation of the marginal utility of the soft drinks of the consumer. In order to understand the total utility and the marginal utility a numeric example will be discussed here;

Number of bottles of soft drinks consumed by the consumer Total utility of soft drinks Marginal utility of the soft drinks
0 0 -
1 10 10
2 25 15
3 42 17
4 50 8
5 50 0

Table 1: Total and marginal utility of soft drinks

From the table, it is clear that one more bottle of soft drink then the marginal utility will be negative. In this case, the diminishing marginal utility is operating so it is necessary to discuss about the law of diminishing marginal utility.

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