Theory question 101
Theory of Consumer BehaviourThe table below represents a traveller's consumption of bottles of Coca-Cola. Study the table carefully and answer the questions that follow.
No. of bottles | Total Utility | Marginal Utility
1 | 15 | 15
2 | 29 | F
3 | 42 | 13
4 | D | 12
5 | 65 | G
6 | 75 | H
7 | E | 0
(a) Complete the missing figures D, E, F, G and H
(b) Draw the demand curve for the traveller's consumption of Coca-Cola. (The use of a graph sheet is essential).
(c) Explain the law of diminishing marginal utility as the basis for the slope of the traveller's demand curve.
Show the model answer
(a) MU = TUn − TUn−1
F = 29 − 15 = 14; D = 42 + 12 = 54; G = 65 − 54 = 11; H = 75 − 65 = 10; E = 75 + 0 = 75
(b) Marginal utility (as the price the traveller is willing to pay) on the vertical axis against number of bottles on the horizontal axis; plot 15, 14, 13, 12, 11, 10, 0 against 1–7: a downward-sloping curve labelled DD with title and scale.
(c) Each extra bottle gives less satisfaction than the one before (MU falls from 15 to 0). A rational consumer buys more only if the price falls to match the lower marginal utility (MU = P), so more is bought only at lower prices: the demand curve slopes downward from left to right.
Demand is derived from the MU curve because the consumer buys where MU = price.