Quiz 12: Market Structures Ii: Monopolistic Competition

Business

Three uses of an individual's time: An individual's time can be utilized in the following three ways: Market work Market work refers to the man hours devoted to produce goods and services through which an individual can earn income in the labor market. In other words, any work that is paid for in the labor market is market work. Examples: • Time spent by a carpenter to make wooden furniture in the furniture shop. • Work hours spent by salesmen to sell televisions in television shops. Nonmarket work Nonmarket work refers to the man hours devoted to satisfy individual's his/her own needs which cannot earn income in the labor market. In other words, any work which is unpaid is called nonmarket work. Examples: • Time spent on personal care.• Time devoted for babysitting.• Time spent on household chores. • Time devoted for tutoring children. Leisure Leisure refers to the time which is not spent on both paid and unpaid work. In other words, it is time spent on entertainment and relaxation. Examples: • Walking in a park. • Weekend parties. • Listening to music.• Watching videos.

Utility: Utility refers to the level of satisfaction a person acquires while consuming goods. In general, utility is measured in terms of the price associated with it. For instance, if a person receives the goods for what he pays and desires for. Disutility: Disutility refers to the level of dissatisfaction of a human being due to rendering their services more than needed. For instance, if a person renders his service more than what he is paid for, then he has disutility in rendering the particular service.Net utility: Net utility is the difference between utility and disutility. For instance, net utility occurs when a person's utility of consumption is lesser than the disutility of rendering services. Net Utility of work on supply of Labor: The net utility of work can increase the supply of labor by both market and non-market works, such as time spent by a person for rendering service to get paid, time spent for doing own works that is unpaid, and time spent for his own skill development which would be paid in future. Thus, these reasons contribute to more supply of labor.

Utility: Utility refers to the level of satisfaction a person acquires while consuming goods. In general, utility is measured in terms of the price associated with it. Disutility: Disutility refers to the level of dissatisfaction of a human being due to their rendering services more than needed. For instance, if a person renders his service more than what he is paid for, then he has experienced disutility in rendering the particular service.Marginal utility: Marginal utility refers to the additional amount of utility obtained due to the consumption of additional goods and services or through leisure.Marginal disutility: Marginal disutility refers to the additional amount of disutility obtained due to engaging in one more hour of work. Utility maximization: Utility maximization refers to the allocation of time between work and leisure that are competing with each other in such a way that it increases the net utility. Utility maximization can be achieved when the marginal utility is equal to the marginal disutility. Hence, utility is maximized between the competing goods when the marginal utility of an additional hour spent on market work is equal to the marginal utility of an additional hour spent on leisure time and non-market work. When the level of wage increases, then the labors would spend more hours on market work, since the marginal utility of market work increases, and spend less time on non-market work and leisure activities. On the other hand, if the wage decreases, then the marginal utility of market work would fall. As a result, the time spent on market work would decrease and the time spent on non-market work and leisure activities would increase.

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