The Economics of Hoypothetical: A 50-Word Summary
Muy: Not explicitly given, but ranges from -2 to 16 depending on quantity.
Qy: 5, where Tuy peaks and Muy hits zero.
Diminishing Utility: Each additional unit of a good brings less satisfaction, as seen with Muy turning negative.
Cardinal Utility: Assumes utility can be quantified, allowing comparisons. (Think: rating ice cream on a scale of 1 to 10).
Look for the quantity where Tuy reaches its highest value (26). This happens at quantities 4 and 5.
Check Muy at these quantities. While both 4 and 5 have a Tuy of 26, only quantity 5 has a Muy of 0.
Therefore, Qy is 5.
c) What does it mean that MU of a commodity is diminished?
The marginal utility (MU) of a commodity refers to the additional satisfaction or benefit gained from consuming one more unit of that good. Diminishing marginal utility states that as you consume more of a good, the additional satisfaction you get from each additional unit decreases. This explains why Muy initially increases with Tuy but eventually becomes negative, indicating dissatisfaction with further consumption.
d) Main assumption of Cardinal Utility Theory:
Cardinal utility theory assumes that utility can be measured on a cardinal scale, meaning you can assign numerical values to different levels of satisfaction. This allows for calculations and comparisons of total utility across individuals and commodities. However, this assumption is criticized for its subjectivity and lack of practical measurement methods.
The graph (shared earlier) depicts Tuy and Muy on separate axes. Tuy increases steadily until reaching its peak at Qy 5. Muy starts negative, becomes positive in the middle, and eventually reaches zero at Qy 5. This visualizes the diminishing marginal utility concept.