Unit notes and practice questions
Everything here is for unit 1 of the Grade 10 Economics textbook: what the chapter covers, the short notes, practice questions with their answers, and the lesson video where one exists.
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A short video lesson on this chapter, made by Temari. It loads only when you press play.
Total utility and marginal utility · 4 min · 2 past exam questions worked through
Tap a part to play the lesson from there.
The cards filed under this chapter on the Grade 10 Economics page. Open one at a time.
When you use it
Use this formula to calculate the additional satisfaction gained from consuming one more unit of a commodity.
Watch out
Do not divide total utility by total quantity. Marginal utility is the change in total utility divided by the change in quantity.
Drafted from Grade 10 Economics, pages 1-16, then checked twice before it went up
| Marginal Utility | Total Utility | Consumer Implication |
|---|---|---|
| Increasing at a decreasing rate | Satisfaction increases with more units | |
| Maximum (Saturation point) | Maximum satisfaction is reached | |
| Decreasing | Dissatisfaction occurs with extra units |
When you use it
Use this reference to identify saturation points and describe how total utility behaves as marginal utility changes.
Watch out
Total utility is at its maximum when marginal utility equals zero, not when marginal utility is at its maximum.
Drafted from Grade 10 Economics, pages 1-16, then checked twice before it went up
10 multiple-choice questions written against this chapter, each with its answer and the reason. Try one before you open the answer.
Question 1
In economics, what is the definition of utility?
Answer: B The power of a commodity to satisfy human wants
Why
Utility is the level of satisfaction or pleasure derived from consuming a good or service. In other words, it is the power of a commodity to satisfy human wants.
Question 2
According to the cardinal utility theory, which imaginary unit is used to measure consumer satisfaction?
Answer: C Utils
Why
The Cardinal School assumed that satisfaction can be measured in numbers using subjective units called utils or measured in monetary units.
Question 3
What happens to Total Utility (TU) when Marginal Utility (MU) becomes zero?
Answer: A Total utility reaches its maximum saturation point.
Why
When marginal utility decreases to zero, total utility reaches its highest point (the saturation point). Any consumption beyond this point causes marginal utility to become negative and total utility to decrease.
Question 4
According to the transitivity assumption in ordinal utility theory, if a consumer prefers bundle A to bundle B, and prefers bundle B to bundle C, which choice must follow?
Answer: C Bundle A is preferred to bundle C
Why
Transitivity states that if bundle A > B and bundle B > C, then bundle A > C.
Question 5
Which statement correctly describes the difference between utility and usefulness?
Answer: A Utility is the concern of the consumer, while usefulness is the concern of the product.
Why
The textbook points out that utility and usefulness are not synonymous: usefulness is the concern of a product, whereas utility is the concern of the consumer.
Question 6
Why does wearing a jacket provide different satisfaction to a person in Addis Ababa during the cold season compared to the hot season?
Answer: A Because utility is relative and varies across time and place.
Why
Utility is subjective and relative. It varies from person to person, from unit to unit, from time to time, and from place to place.
Question 7
Suppose Beka obtains 10 utils of total utility from consuming 2 oranges, and his total utility rises to 15 utils when he consumes 3 oranges. What is the marginal utility of the 3rd orange?
Answer: C 5 utils
Why
Marginal utility is the change in total utility divided by the change in quantity: MU = (15 - 10) / (3 - 2) = 5 utils.
Question 8
For a single commodity X, if a consumer finds that MUX > PX, how can the consumer increase satisfaction or welfare?
Answer: B By purchasing more units of commodity X
Why
When the marginal utility of a commodity is greater than its price (MUX > PX), the extra satisfaction exceeds the cost, so the consumer increases welfare by purchasing more units of X.
Question 9
What does the assumption of diminishing marginal rate of substitution (DMRS) state in ordinal utility theory?
Answer: B The consumer is willing to give up fewer units of good X for each additional unit of good Y.
Why
DMRS means that as a consumer substitutes more and more of one commodity (Y) for another (X), the consumer is prepared to give up fewer units of X for each additional unit of Y to keep total satisfaction constant.
Question 10
Aster buys two goods, bread (X) and banana (Y). The price of bread is PX = 2 birr and the price of banana is PY = 2 birr. Under cardinal utility theory, what is the equilibrium condition for Aster?
Answer: A <code>MU<sub>X</sub> = MU<sub>Y</sub></code>
Why
The general condition is MUX / PX = MUY / PY. Since PX = 2 and PY = 2, we have MUX / 2 = MUY / 2, which simplifies to MUX = MUY.
The app holds 12 questions on this unit, marked as you go. These are the first 10.
Unit 1 runs from page 1 to page 16 of the Ministry of Education edition.
Ministry of Education edition, English, 193 pages
Temari turns this chapter into timed practice and marks it as you go, with an AI tutor to explain anything that did not land.
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