Measurement of Utility

Measurement of Utility

• Total Utility (TU) refers to the total amount of satisfaction a consumer gets from consuming a specific quantity of a commodity at a particular time.
• TU increases as the consumer consumes more of a good, but there is a saturation point beyond which the consumer will not be capable of enjoying any greater satisfaction.
• Marginal Utility (MU) refers to the additional utility obtained from consuming an additional unit of a commodity.
• MU is the change in total utility resulting from the consumption of one more unit of a product per unit of time.
• Mathematically, the formula for marginal utility is: MU = ΔTU / ΔQ, where ΔTU is the change in total utility, and ΔQ is the change in the amount of product consumed.

Activity 1.2

• Find the missed value of total utility (TU) and marginal utility (MU) in the table.
• Table 1.1 shows numerical values of marginal and total utility derived from the consumption of a hypothetical commodity (X).

Activity 1.3

• Given a table showing TU of consuming commodity Y, find marginal utility (MUY) and draw total utility (TUY) and marginal utility (MUY) curves.
• Marginal utility of a commodity is diminishing, meaning that the utility derived from consuming successive units of a commodity goes on decreasing.
• The main assumptions of the cardinal utility theory are:

The Law of Diminishing Marginal Utility (LDMU)

• LDMU states that as the quantity consumed of a commodity increases over a unit of time, the utility derived by the consumer from the successive units goes on decreasing, provided the consumption of all other goods remains constant.
• The law is central to the cardinal utility analysis of consumer behavior.
• The utility that a consumer gets from consuming a commodity for the first time is not the same as the consumption of the good for the second, third, fourth, etc.

Unit 2: Theories of Demand and Supply

• The law of supply states that as the price of a commodity increases, the quantity supplied of the commodity also increases, ceteris paribus.
• Factors that determine elasticity are:
  • Production period: The amount of time available to producers for responding to changes in product price.
  • Factor substitution: If there are greater substitutes for factors of production, supply is more elastic.
  • Number of sellers: The market’s supply will be more elastic when there are large numbers of firms serving the market.
• Elasticity is a measure of how responsive the quantity supplied or demanded is to changes in its determinants.

Unit 3: Theories of Production and Cost

• The unit explores the theory of production and cost, which emphasizes the behavior of firms in the production of goods and services.
• Firms incur costs when they buy inputs to produce the goods and services that they plan to sell.
• The unit objectives include:
  • State production and production functions in the short and long run.
  • Derive and draw the various average and marginal functions from the total functions.
  • Calculate the average and marginal cost and productivity values.
  • Draw and explain the relationship between different types of cost curves.
  • Show the relationship between production and cost curves.
  • Discuss the stages of production.
  • Analyze the concept of returns to scale in production.

Unit 5: Banking and Finance

• The money market is the sector of the financial market that includes financial instruments with a maturity date of one year or less at the time of issuance.
• Money market instruments include:
  • Treasury bills
  • Commercial papers
  • Negotiable certificates of deposit
  • Repurchase agreements
  • Bankers’ acceptances
• The capital market is the sector of the financial market where long-term financial instruments are issued by corporations and governments.
• Capital market securities include:
  • Equity (common stock and preferred stock)
  • Debt Obligations