Topic One (1.1): Utility

Introduction

In this topic, you will explore the meaning of total and marginal utility and learn how to explain the concept of diminishing marginal utility. You will also evaluate the limitations of marginal utility and the assumptions of rational behaviour.

Task

Economics in Context

  • Read the article on page 303 of the textbook and consider whether you think that Black Friday sales are a demerit good as they encourage overconsumption of goods.
  • Further guidance and suggested answers can be found in the digital textbook and in General Resources.

Watch

Watch this video on utility theory, which explains how we review marginal and average utility and how this can help to calculate an individual demand curve, and make notes. You may need to watch it a couple of times.

WATCH – Utility Theory: Total, Marginal and Average Utility (YouTube) Links to an external site.

Read and Make Notes

Read and make notes from the following sections of the textbook on pages 303 to 306:

    • 30.1 Utility and diminishing marginal utility;
    • 30.2 The equi-marginal principle;
    • 30.3 Derivation of an individual demand curve;
    • 30.4 Limitations of marginal utility theory and assumptions of rational behaviour.

Glossary

Highlight any new terminology on your glossary.

Activities in the Book

  • It is important that you complete Activities 30.1, 30.2 and 30.3 in the textbook.
  • Suggested answers can be found in the digital textbook and in General Resources.

Task

Think Like an Economist

  • Read and complete the ‘Think like an Economist’ task on page 306 of the textbook. This task asks you to consider the impact of increased sales of tinned food and the effect on employment.
  • Suggested answers can be found in the digital textbook and in General Resources.

Consolidate

  • Please now have a go at the exam-style questions on pages 306 to 307 of the textbook.
  • Suggested answers can be found in the digital textbook and in General Resources.

Reflect

  • Draw up a table like the one on page 307 of the textbook and complete the self-evaluation.
  • If there are any areas about which you are unsure, please go back over your notes, the textbook and the resources listed in this topic before moving on.