Relationship between Total Utility and Marginal Utility

All those goods and services which have the capacity to satisfy human wants are said to contain utility in the viewpoint of economics. The relation between total and marginal utility is explained with the help of Table 1. In his estimation, the first apple is the best out of the lot available to him and thus gives him the highest satisfaction, measured as 20 utils.

Any point outside the area is a non-attainable combination, which the consumer cannot afford to buy. The law of demand is founded on this principle, as the concept of reduced pricing is related to the Law of Diminishing Marginal Utility. 5.Total Utility (TU) It is the sum total of Marginal Utilities derived from the consumption of all the units of a commodity. These CBSE Economics Class 12 Chapter 2 notes are available in PDF format, making it easy to download and use these notes on the go.

When the consumer consumes the third apple, the total utility becomes 45 utils. when mu is falling tu is Thus, marginal utility of the third apple is 10 utils (45—35). Shift in demand curve occurs when the price of a commodity remains unchanged however the quantity demanded changes due to other factors, allowing the curve to shift to one side. Movement in the demand curve occurs when a commodity experiences a change in both quantity demanded and price, leading the curve to move in a specific direction.

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When the consumer buys apples he receives them in units, 1, 2, 3, 4 etc., as shown in table 1. To begin with, 2 apples have more utility than 1; 3 more utility than 2, and 4 more than 3. The units of apples which the consumer chooses are in a descending order of their utilities. If customers want to buy one more unit of Item 1, they may only do so if they are willing to give up some quantity of another good. They must decide whether to spend money on Good 1 or Good 2.

It can be seen from the above schedule that the consumer substitute X1 for X2 but continues to get the same satisfaction. But for every increase of 1 unit of X1; the consumer gives up lesser and lesser quantity of X2.Therefore, this is called the law of diminishing marginal rate of substitution. According to the law of diminishing marginal utility, as a consumer consumes more units of a commodity, the marginal benefit received from each succeeding unit declines. In the diagram, TU is the total utility curve and MU is the marginal utility curve.

After the 6th unit consumption of goods, MU is negative (-2) and due to negative MU, total utility declines to 28 utils from 30 utils. Thus, the consumer gets maximum satisfaction when MU is zero and that point is known as the point of saturation. The marginal rate of substitution is the slope of the indifference curve.

The effects of price changes on the amount desired of an item are described in the form of a law known as the law of demand. Marginal Utility (MU) refers to additional utility on account of the consumption of an additional unit of a commodity. 6.Marginal Utility (MU) It refers to additional utility on account of the consumption of an additional unit of a commodity.

Important Questions for Class 12 Economics Utility,Total Utility , Marginal Utility and its Law

The budget line is a graphical representation of all the bundles that cost the same as the consumer’s income. The budget line depicts two different combinations of goods that a consumer can buy based on his or her income and commodity prices. The rate at which a consumer substitutes one good for another as long as the latter good is providing equal satisfaction is known as the marginal rate of substitution. When a consumer consumes the 6th unit of the commodity, s/he gets no utility or there is zero utility and as a result, total utility (TU) remains constant and becomes maximum. There is a direct relationship between total utility and marginal utility.

Total Utility, Marginal Utility, and their Relationship

The second apple will naturally be the second best with lesser amount of utility than the first, and has 15 utils. It is the representation of negative utility and total utility declines. The budget line’s slope indicates how much change in good 2 is necessary per unit of change in good 1 along the budget line. The budget constraint includes all the different combinations of goods or products that a person can afford based on the cost of goods and consumer income. Any point within the area budget line is an attainable combination that a consumer can buy given his income and price of goods.

Monotonic Preferences

1. If we sum the utilities obtained from the consumption of different units of a particular commodity at a given time, then we get the numerical value of total utility.
2. The marginal utility can be defined as an extra utility drawn from an extra unit of a commodity.
3. The MU curve is represented by the increment in total utility shown as the shaded block for each unit in the figure.

Whether you are travelling or waiting for a doctor’s appointment, once you download these notes, you need to go through them at your comfort and pace. You can refer to them even before an examination, be it a school or competitive exam. Students can also print these Microeconomics Class 12 Chapter 2 notes in hardcopy, making it easy to revise through them. It is worth noting that the slope of the new budget line is identical  as it was before the customer’s earnings changed. Consumers are prepared to spend lesser monetary amounts for more of a product as its utility falls with increased consumption.

The capacity of a commodity to meet a need is its utility. The more the utility obtained from an item, the greater the need for it or the stronger the desire to have it. The same product can provide various levels of utility to different people. A consumer’s desire for an item is usually determined by the utility (or satisfaction) he obtains from it. It is assumed that the different unit consumed should be identical in all respects and consumption should be continuous.

(iv) Consumption should be continuous and of some standard units. 2.Utility The want satisfying power of a good is called utility. Also join our Facebook Group «Economics Students Society» to stay connected with us and receive different knowledgeable material uploaded on Page. Therefore, total Utility, marginal Utility, and their relationship can be summarized as below.