Economics Questions and Answers

The elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price. 

%Change in quantity = 12 - 10 = 2
Percentage change = \(\frac{2}{10}\) = 0.2

Change in price = 8 - 6 = 2
Percentage change = \(\frac{2}{8}\) = 0.25

Elasticity of demand = \(\frac{0.2}{0.25}\) = 0.8

The second equation of exchange of money is P = \(\frac {M}{KR}\)

Where : P = Price level of consumer goods
K = The proportion of the community's total income held in money
R = The real income
M = The stock of money.

The money supply consist of M \(^1\) and M \(^3\). M \(^3\) is a measure in money supply. M \(^3\); This is M \(^1\) plus deposits on deposit account held by barks and discount houses.

The law of diminishing marginal utility explains that all things being the same, as consumption increases, the marginal utility derived from each additional unit of a commodity declines. 

What this means is that, as you consume a particular commodity, the satisfaction derived from it increases, but it gets to a point where additional consumption of that particular product will no longer give you as much satisfaction as the first few ones you consumed.

From the table above, the consumer started from 1 unit to five units, and at first, the total utility derived from consuming the product was rising from 10 -> 15 -> 17 -> 18 and remained at 18

However, the marginal utility kept declining after consuming the first unit. It moved from 10 -> 5 -> 2 -> 1 -> 0

To get Q, we first have to solve for P, hence we have;

Total cost (P) = fixed cost + variable

750 + 900 = 1650

Marginal cost (Q) = 1650 - 1310 = 340