MULUNGUSHI UNIVERSITY

INTRODUCTION TO MICROECONOMICS (SSE121) TUTORIAL SHEET FOUR

1. Define the following

i. Utility
ii. Total utility
iii. Marginal utility
2. Distinguish between cardinal and ordinal approaches to utility measurement.
3. State and explain the law of diminishing marginal utility.
4. a. The following table portrays Mr Blue’s total utility from consumption of Batman
comic books. The column for marginal utility has been left blank. Calculate the values
for marginal utility and fill in the blanks in the marginal utility column.

Number of comic books Total Utility Marginal

Utility
0 0
1 100
2 190
3 270
4 330
5 380

b. Does Mr Blue experience the law of diminishing marginal utility from consuming
Batman comics? How do you know?
c. Sketch graphs for the total utility and the marginal utility separately.
5. You are choosing between two goods X and Y, and your marginal utility for each is
shown below. If your income is K12, and the prices of X and Y are K2 &
K4respectively.

Units of X MUx Units of X MUy

1 10 1 8
2 8 2 7
3 6 3 6
4 4 4 4

a. What quantities of each will you purchase to maximize utility?

6. What is an indifference curve? State and explain the properties (illustrate with help of
graphs)
7. Explain what a budget line is. How does a change in (i) Price (ii) Income, affect a
budget line?
8. Illustrate consumer equilibrium under ordinal utility with the help of graphs.
9. Suppose Malo buys only milk and cookies
i. In 2018 his income was K1000, milk cost K20 per quart and cookies cost
K40. Draw Malo’s budget constraint.
ii. Now suppose that all prices increase by 10 percent in 2019 and Malo’s
salary increases by 10 percent. Draw Malo’s budget constraint. How will his
optimal combination of milk and cookies in 2019 compare to his optimal
combination in 2018.
iii. Suppose only price of milk doubles.
iv. Suppose the price of cookies falls to K10 but price of milk remains
unchanged.

10. Suppose you take a job that pays a salary of K30,000. Use a diagram with the budget
constraint and indifference curves to show your consumption changes in each of the
following situations.
i. Your salary increases to K40,000.
ii. Pay as you earn (PAYE income tax) increases.