1.Explain the term total utility
2. A consumer has a current income of k60 which can be spend only on good x and y. The price of good x is k3 and the price of good y is k2.
A. Graph the consumer's budget constraint, clearly labeling intercepts and the slope of the budget line.
B. Suppose that the consumer chooses to purchase 12 units of good x. On the same graph, show the consumer's utility maximizing bundle (quantities of x and y) and the difference curve through this point.
(Assignment form)
1. Total utility refers to the total satisfaction or benefit that a consumer derives from consuming a certain quantity of goods or services. It is the sum of the satisfaction or utility derived from consuming each unit of a good or service.
2.
A. Budget constraint:
The consumer's budget constraint can be graphed as follows:
Intercept on x-axis: 20 units (60/3 = 20)
Intercept on y-axis: 30 units (60/2 = 30)
Slope of the budget line: -3/2 (as the price ratio is 3:2)
B. Utility maximizing bundle:
If the consumer chooses to purchase 12 units of good x, they would spend 12*3 = k36 on good x. With an income of k60, they would have k24 left to spend on good y. This would allow them to purchase 12 units of good y (as k24/2 = 12).
The utility maximizing bundle for the consumer would be (12, 12) - 12 units of good x and 12 units of good y. The indifference curve through this point would represent all the combinations of x and y that provide the consumer with the same level of utility or satisfaction.