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Biscuit experiment

Biscuit experiment. Aim: To determine if the concept of utility exists and the law of diminishing marginal utility is possible. Complete the table from your experience similar to the answers given. Utility. Concept of satisfaction or benefit gained from the consumption of a good or service.

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Biscuit experiment

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  1. Biscuit experiment • Aim: To determine if the concept of utility exists and the law of diminishing marginal utilityis possible. • Complete the table from your experience similar to the answers given.

  2. Utility • Concept of satisfaction or benefit gained from the consumption of a good or service. • Total utility – total satisfaction gained from consuming sequential goods e.g. 1,2 3 4. TU= MU 1 + MU2 • Marginal utility – extra satisfaction gained from consuming one extra good. The first good consumed will have the highest utility. MU= TU2-TU1 • Consumers aim to maximise their total utility and again the most from their limited means.

  3. Law of Diminishing Marginal Utility • This law states that as a individual consumes more of one good the extra satisfaction gained from the extra good will decrease until the satisfaction gained becomes zero and no more will be consumed.

  4. Optimum Price Rule • Law which states a rational consumer will not purchase a product if the price is greater than the satisfaction gained from consuming it. • IE = P > MU and if P < MU they will consume more until P = MU • So MU = P therefore using this law and the law of diminishing utility we can derive the demand curve. • Law of Diminishing Utility determines the quantity and the Optimum Price Rule determines the price.

  5. Deriving the demand curve

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