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Concept of utility

This is about the utility concept

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Concept of utility

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  1. UTILITY • It refers to the total satisfaction received from • consuming a good or service. • Example: • Bread satisfies hunger • Cloth satisfies the want for clothes • T.V satisfies the want for entertainment

  2. TYPES OF UTILITY

  3. CARDINAL AND ORDINAL UTILITY Cardinal Utility: The numbers1,2,3,4 arecardinal numbers. • According to cardinal approach, utility can be measured. Ordinal utility: The numbers 1st, 2nd, 3rd, and 4th, are ordinal numbers. These ordinal numbers are ranked or ordered. These can not be measured.

  4. CONCEPT OF UTILITY

  5. Total and Marginal Utilities Total Utility: Total utility means the total satisfaction attained by the consumer from the units of a commodity taken together in consumption of a certain thing at a time. Marginal Utility: Marginal utility is the additional utility obtained from consuming an additional unit of a good or commodity.  all the  .

  6. The Law of Diminishing Marginal Utility It is a psychological fact that when a person acquires more and more units of the same commodity during a particular time, the utility he derives from the successive units will diminish. In other words, the additional satisfaction derived from the additional units of a commodity goes on decreasing. .

  7. Diagram & Table Explanation X Units Total Utility Marginal Utility The Law of Diminishing Marginal Utility 35 1 10 - 30 TUC 25 2 18 8 20 3 24 6 Total/MarginalUtilities 15 10 4 28 4 5 5 30 2 0 1 2 3 4 5 7 MUC 6 -5 6 30 0 X goods 7 28 -2

  8. Explanation of the Law of Diminishing Marginal Utility We can explain the law with the help of the table. In the table a consumer goes on increasing ‘X’ goods, the additional utility derived from an additional ‘X’ goods declining. The law is clear from the following table. We can observe that as the units of the commodity ‘X’ is increase, the marginalutilityderived from each success units tends to diminish. The total utility increases at diminishing rate till the 6th ‘X’. At that level total utility becomes maximum, and marginal utility is zero. After this level total utility declines and marginal utility becomes negative. Zero marginal utility implies the point of satiety which indicates the complete satisfaction of a given want. The law of diminishing marginal utility can also be represented diagrammatically through the marginal and total utility curves. 

  9. The relationship between total utility and marginal utility 1. When total utility increases at diminishes rate, marginal utility diminishes. 2. When total utility is maximum, marginal utility becomes zero. 3. When total utility decreases, marginal utility becomes negative.

  10. THANK YOU

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