Theory of Consumer Behavior :Total and Marginal Utility and their Relationship : Economics notes class11-12

 

Theory of Consumer Behaviour :

Lesson at at a glance 

Theory Of Consumer Behaviour
Cardinal Utility Analysis	Ordinal Utility Analysis
Utility, Total Utility, Marginal Utility	Indifference Curve
Relation Between Total Utility and Marginal Utility	Indifference Map
Law of Diminishing Marginal Utility	Marginal Rate of Substitution(MRS)
Law of Equimarginal  utility	Properties of Indifference Curve
Consumers equilibrium	Budget Line
	Consumer’s Equilibrium Through Indifference Curve

 

  # Cardinal Utility :

   Cardinal Utility means the utility that consumers derived from one unit of the commodity.

   It can be measured in absolute terms.

   Utility can be measured in monetary terms i.e., the utility of one unit of a commodity equals to the amount of money, which a consumer is prepared to spend on it.

  # Rational Consumer:

   A consumer is said to be rational when, he or she  tries to maximise the total utility (TU) from his purchase.

  # Consumer’s equilibrium :

    A consumer will be in equilibrium when he spends his given income on the purchase of different goods, in such a way that his total Utility is maximised.

  #  Utility : 

   The utility is the “want satisfying power of a commodity”. Utility can be defined as –  The amount of  satisfaction derived from the consumption of a commodity.

    Characteristics of Utility:  

1. Utility is Subjective:

     Utility depends on individual’s own subjective  estimate of satisfaction derived from consumption of the commodity.

2. Utility is not measurable : 

     Utility can not be measured in objective terms. Some economists measure the utility in subjective units utils. 

3. Utility is different from usefulness :

     Utility does not imply that a good is useful or not. 

    A commodity may possess utility even though it may not be useful.

  Example : Smoking have harmful effects, but it has utility so long as it satisfies the smoking desire of the smoker. 

      Total and Marginal Utility : 

  Question : Define Total Utility and Marginal Utility. 

     1. Total Utility:  

     The term total utility (TU)  refers to the total satisfaction  derived  by the consumer from the consumption of all the units of a given commodity over a period of time. 

   The Total utility is the sum of all the marginal utilities :

                             TU = Σ MU

            =  MU1 + MU2 +………+ MUn

  2. Marginal Utility : 

        The marginal utility is the additional benefit a consumer derives from the consumption of one additional unit of good or service.

      In other words, marginal utility(MU) is the addition to the total utility (TU)  resulting from the consumption of one additional unit of the commodity.

     MUx = ∆ TU/ ∆ Qx 

Where 

    MUx = marginal utility of commodity ‘X’

  ∆ TUx = change in total utility of commodity ‘X’

  ∆ Qx. = change in quantity as a result of consumption of an additional unit.

Therefore,   MUn = TUn – TU (n-1) 

    Utility Schedule for Mangoes 

   

Units of Commodity	Total Utility	Marginal Utility
0	0	–
1	12	(12-0)=12
2	20	(20-12)=8
3	25	(25-20)=5
4	28	(28-25)=3
5	28	(28-28)=0
6	26	(26-28)=-2

  

     Utility  Curve for Mangoes 

Relation Between  Total Utility(TU) and Marginal Utility  (MU) :

 Relationship between TU and MU can be indicated by Three propositions –

1. The TU curve is concave from above which means declining marginal utility.

  At first TU shows positive curve which means TU is increasing but at a decreasing rate. 

At the same time MU is decreasing but remains positive.

2. When TU is maximum, MU is zero.

3. TU curve has negative slope, showing a decrease, then MU becomes negative.

Summery : 

 

S.N.	Total Utility	Marginal Utility
1.	Increasing at a decreasing rate	Decreasing but remains Positive
2.	TU is Maximum	MU is Zero
3.	TU is decreasing	MU is Negative