The Copperbelt University
School of Humanities and Social Sciences
Department of Economics
BS/BSP/HRM 110: Principles of Economics
Monday, 27 February 2023
1. The data in the Table 1 below shows the utility that Kaoma gets from consuming
apples.
Table 1: Kaoma’s Daily Utility from Consuming Apples
Number of apples Total utility (utils
consumed per day)
0 0
1 7
2 11
3 13
4 14
5 14
6 13
a) Briefly explain what the data shows.
b) By adding another column to the table, calculate the marginal utility.
c) Draw the total and marginal utility curves on the same graph.
d) Use the results in the graphs above to explain the “law of diminishing marginal
utility”.
2. The following schedule provides the total satisfaction an individual derives from
consuming a good
Units of X 0 1 2 3 4 5
Total ‘utils’ of satisfaction 0 4 7 9 10 10
Marginal ‘utils’
a) Calculate the marginal utilities of this consumer.
b) Graph the marginal and total utility curves.
3. Suppose that the consumer has the total utilities derived from the consumption of
goods A and B of Table2. Further, suppose that the consumer has an income stipend
of K10 while the price of goods A and B are K2 and K1 respectively.
Table 2: Total Utilities of Consuming Goods A and B.
Units of A and B 1 2 3 4 5 6 7 8 9 10
Total Utility (A) 14 26 37 47 56 64 70 74 77 78
Total Utility (B) 13 24 34 42 49 55 58 60 60 55
a) Calculate the marginal utilities at each unit of the two goods in a table similar to
the one above.
b) Determine the equilibrium utility maximisation quantities of the two goods.
c) Using an appropriate graph, clearly show the answers in you have obtained (b).
d) Prove that all the money income is being exhausted at the utility maximising
quantities.
e) What is the total utility at the optimal level of consumption?
1
3. Sketch a consumer’s indifference map for two goods and . Mark the optimum
consumption point. Now illustrate the following on separate diagrams for each: a) A
rise in the price of good , but no change in the price of good .
b) A shift in the consumer’s tastes from good to good .
c) A fall in the consumer’s income.
d) A fall in the price of good .
4. Suppose a consumer has a budget for fast-food items of K20 per week and spends this
money on two goods, hamburgers and pizzas. Suppose hamburgers cost K5 each and
pizzas cost K10. Put the quantity of hamburgers purchased per week on the horizontal
axis and the quantity of pizzas purchased per week on the vertical axis. a) Draw the
budget line. What is its slope?
b) Suppose the consumer in part (a) is indifferent among the combinations of
hamburgers and pizzas shown. In the grid you used to draw the budget lines, draw
an indifference curve passing through the combinations shown, and label the
corresponding points A, B, and C. Label this curve IC.
Combination Hamburgers/week Pizzas/week
A 5 0
B 3 1⁄2
C 0 3
c) Is the budget line tangent to indifference curve IC at any point? Explain the
meaning of this tangency.
