a. Explain utility, total utility and marginal utility and the differences betwe

Question

a. Explain utility, total utility and marginal utility and the differences between them. Include examples.

          1. Explain with examples the law of demand and the demand curve.

          2. Explain “the rational consumer, marginal utility and price.

          3. With examples explain the difference between elastic and inelastic demand

                   Possible examples-beer and cigarettes

          4. With examples explain how elasticity of demand effects total revenue.

Explanation / Answer

Total utility is when if a customer recieves total satisfaction by consuming total amount of the product.

Marginal utility is different from total utility, In this a customer would recieve increasing amount of satisfaction by consuming extra unit of goods or service.

Rational consumer is a kind of consumer who knows what he needs and also is aware of the kind of limited resources he has and make decisions based upon those facts. Rational consumer usually buys value consious goods and services.

The difference between elastic and in-elastic demand is very clear, People are addicted to some habits like smoking and alcohol, These products have remained in-elastic for centuries, It does not matter what the price of product if consumer is addicted he will spend even his last penny on such habits.

The demand for cigarettes is in-elastic and does not follow the price-demand graph, If someone need to smoke he will smoke. He wont care about few cents rise in price,

Same with beer, If someone goes out to drink, he would drink. He wouldnt mind paying little extra if costs went up.

4) Elasticity in demand is real economics and it affects real economy, It can be seen clearly.

There are number of products that are elastic in demand, the best example is consumption of fuel, During 2007 fuel prices were record high, People just left their low paying jobs if they were far away, People did not go for long vacations etc. They saved record fuel until global demand for oil went down throught western world, finally leading to oil price collapse.

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