Generally speaking, what does a consumer’s level of utility reflect? What is an
ID: 1152000 • Letter: G
Question
Generally speaking, what does a consumer’s level of utility reflect?
What is an example of a “generic” utility function if the two goods are X and Y?
What is the marginal utility of good X? How would we typically abbreviate this variable?
In what units is utility measured?
Generally speaking, what does a consumer’s level of utility reflect?
What is an example of a “generic” utility function if the two goods are X and Y?
What is the marginal utility of good X? How would we typically abbreviate this variable?
In what units is utility measured?
Explanation / Answer
1.
Consumer’s level of utility, reflects the level of satisfaction drawn from the consumption of goods. It shows the value received from the consumption of each units.
2.
If there are two goods X and Y, then:
U(X, Y) = 2Xa Yb
Here, a>0 and b>0
Above is the example of Cobb-Douglas utility function.
3.
Marginal utility of good X, refers to the utility drawn from the consumption of one additional unit of X. It is identified by the first order differentiation of the utility function w.r.t. X.
For example, in the case of above equation,
Marginal utility of X = dU/dX = 2a*Xa-1 * Yb
The marginal utility of X is abbreviated by MUX .
4.
Utility is measured in unit that is called as utils.
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