THE UNIVERSITY OF ZAMBIA
DEPARTMENT OF ECONOMICS
2023-2024 ACADEMIC YEAR
ECN 2115 TUTORIAL SHEET 3
1) With the aid of a well labelled diagram, explain the relationship between total utility and
marginal utility?
2) Suppose that a Demand Curve is given by Qy = 10 – 5Py + Px Where Qy is the quantity
of the good, Py is the price of the good and Px pertains to the price of a substitutable
good. The price of the related good is K2. Suppose the price of the good is K1. Find the
own price elasticity of demand? Find the cross-price elasticity of demand?
3) Let us assume two goods, skis and bindings, that are perfect complements. That is onefor-one complements. Maureen spends all her equipment budget of K1,200 per year on
these two goods. Skis and bindings each cost K200 per pair. What will be the income
and substitution effects of an increase in the price of bindings to ZMK per pair?
4) Malita has K150 of disposable income to spend each week and cannot borrow money.
She buys Milk balls and a composite good. Suppose that Milk balls cost K2.50 per bag
and the composite good costs K1 per unit.
a) Sketch Malita’s budget constraint.
b) What is the opportunity cost, in terms of bags of Milk balls, of an additional unit of
the composite good?
c) Suppose that in an inflationary period the cost of the composite good increases to
K1.50 per unit, but the cost of Milk balls remains the same. Sketch the new budget
constraint.
d) What is the opportunity cost of van additional unit of the composite good?
e) Suppose now Malita demands a pay raise to fight the inflation. Her boss submits and
raises her salary so that her disposable income is now K225 per week. Sketch the new
budget constraint. Is Malita better off?
f) What is the opportunity cost of an additional unit of the composite good?
5) If an individual’s preferences are described by the utility function U (X1 , X2 ) = X12 +
X22,
a) Graph the indifference curve for U = 20 and U= 40.
b) Find the optimal consumption quantities if P1 = K2.50;
P2 = K7.50; and M = K60.