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    Utility Analysis

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    veer kumar
    The document discusses concepts related to supply, demand, utility analysis, and equilibrium price. It provides: 1) Definitions of key concepts like the law of supply, supply function, expansion/contraction of supply, and elasticity of supply. 2) Examples of supply and demand functions and calculations to find equilibrium price and quantity. 3) Definitions of utility, total utility, marginal utility, and the laws of diminishing marginal utility and equi-marginal utility. 4) Numerical examples to calculate total utility, marginal utility, and equilibrium price based on the laws of utility.

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    Utility Analysis

    Uploaded by

    veer kumar
    113 views10 pages
    The document discusses concepts related to supply, demand, utility analysis, and equilibrium price. It provides: 1) Definitions of key concepts like the law of supply, supply function, expansion/contraction of supply, and elasticity of supply. 2) Examples of supply and demand functions and calculations to find equilibrium price and quantity. 3) Definitions of utility, total utility, marginal utility, and the laws of diminishing marginal utility and equi-marginal utility. 4) Numerical examples to calculate total utility, marginal utility, and equilibrium price based on the laws of utility.

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    The document discusses concepts related to supply, demand, utility analysis, and equilibrium price. It provides: 1) Definitions of key concepts like the law of supply, supply function, expansion/contraction of supply, and elasticity of supply. 2) Examples of supply and demand functions and calculations to find equilibrium price and quantity. 3) Definitions of utility, total utility, marginal utility, and the laws of diminishing marginal utility and equi-marginal utility. 4) Numerical examples to calculate total utility, marginal utility, and equilibrium price based on the laws of utility.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    113 views10 pages

    Utility Analysis

    Uploaded by

    veer kumar
    The document discusses concepts related to supply, demand, utility analysis, and equilibrium price. It provides: 1) Definitions of key concepts like the law of supply, supply function, expansion/contraction of supply, and elasticity of supply. 2) Examples of supply and demand functions and calculations to find equilibrium price and quantity. 3) Definitions of utility, total utility, marginal utility, and the laws of diminishing marginal utility and equi-marginal utility. 4) Numerical examples to calculate total utility, marginal utility, and equilibrium price based on the laws of utility.

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    © All Rights Reserved
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    of 10

    Supply Analysis

     LAW OF SUPPLY -
    “ As the price of a commodity, X, increases, the
    quantity supplied of that commodity also increases”

     Supply Function - Sf = f(Px,Pi,T,Cf,W,N)


     Expansion/Contraction of Supply
     Increase/Decrease in Supply
     Elasticity of Supply - % ∆ Qs / % ∆ in P
    Numerical Exercises
    Qd = 28 – 0.04P
    Qs = -2 + 0.16P
    a. Calculate the equilibrium price and quantity
    b. You have a generalized demand function

    Qd = 8000 – 16P – 0.75M – 30Pr


    a. Derive the equation for the demand function when M
    = $3000 and Pr = $50
    b. Calculate the new equilibrium price and quantity using
    the new demand function and previous supply function
    UTILITY ANALYSIS
    Utility Analysis
     Utility : the ability to satisfy consumer wants
     Cardinal Utility Theory – utility can be measured
     Assumptions
    - utilities are independent
    - goods are homogenous

     Total Utility – sum of all the utilities derived from


    the individual commodities
    TU = U1 + U2+U3+…..+Un
    Marginal utility
    • Marginal utility – change in total utility resulting
    from consumption of additional unit of a commodity.

    • Marginal utility= Change in total utility


    Change in quantity consumed
    Numerical Exercise
    No. of Chocolates Total Utility Marginal Utility

    0 0 -

    1 7 ?
    2 11 ?
    3 13 ?
    4 14 ?
    5 14 ?
    6 13 ?
    LAW OF DIMINISHING MARGINAL
    UTILITY :
    “as an individual increases consumption of a given
    commodity within a set period of time, the marginal
    utility gained from each successive unit of that
    commodity eventually declines”
     LAW OF EQUI-MARGINAL UTILITY:
    “ Given his money income and the prices of goods
    say X and Y, the consumer would allocate his entire
    income between these two good in such a way that
    the marginal utility from the last rupee spent on the
    each good is same”

    MUx/Px =MUy/Py = MUm


    Numerical Exercise
    Qa TUa MUa MUa/Pa

    1 40
    2 70
    3 90 Pa = Rs 5
    4 100
    5 105

    Qb TUb MUb MUb/Pb


    1 35
    2 60
    Pb = Rs 5
    3 80
    4 95
    5 105
    Limitations of Cardinal Utility Analysis
     Utility is subjective.

     One cannot add different types of utility or satisfaction


    from different goods .

     Different goods are interrelated and the utility from one


    good often depends upon the utility from another good.

    Dhruva College of Management 10

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