Simply put, they suggested that utility can be measured in terms of price or money a consumer is willing to pay. Total utility refers to the total satisfaction obtained from the consumption of all possible units of a commodity. It measures the total satisfaction obtained from the consumption of all the units of that good. MU is not uniformly applicable to all kinds of commodities or activities. For some, it is positive while for others, it is negative.

A person returned home from the market on a bright sunny day. He was extremely thirsty and grabbed a bottle of cold water to satisfy his thirst. Furthermore, whether a good is normal or inferior may differ from one individual to the next. For you, a commodity could be normal good, but for someone else, it might be inferior.

The indifference curve will neither touch nor will they intersect when mu is falling tu is each other. Two points of the indifference curve do not give the same satisfaction level. When the indifference curve is high it shows a high satisfaction level. The marginal rate of substitution is the slope of the indifference curve. It is because of the MRS diminishing, that the indifference curve is convex in nature. As with increase in quantity of one good, the consumer forgoes less and less of the ther good.

Concept of Cardinal Utility: Total Utility and Marginal Utility

It asserts that when the price of an item decreases, the amount required rises, and when the price of a commodity rises, the quantity demanded declines. In other words, if everything else remains constant, the price of a commodity and its quantity requested have an inverse relationship. The fundamental problem in utility analysis is that it makes the incorrect assumption that utility can only be stated in cardinal numbers. It implies that utils like 1, 2, and 3 can never accurately represent usefulness.

Total Utility, Marginal Utility, and their Relationship

Utils are imaginary and psychological units that are used to measure satisfaction obtained from the consumption of a certain quantity of a commodity. It is considered to be measured in terms of cardinal numbers such as 1, 2, 3, 4, and so on. Thus, four utils are more significant than three utils, three utils are more significant than two utils, and so on. People consume different goods and services to maximise their level of satisfaction. To achieve this, it is required to ascertain the level of satisfaction attained from a certain commodity.

CBSE Study Materials

Where,MUx is the marginal utility of commodity x;ΔTUx is the change in total utility of commodity x;ΔQx is the change in the quantity of commodity x. Often referred to as consumer purchasing behaviour, consumer behaviour consists of all of the factors that influence a consumer’s product search, selection, and purchase. We can also use the phrase to refer to the acquisition of services. Consumer behaviour’s post-purchase stage has also been included here.

Till 4 burgers, TU increases at a diminishing rate as MU from each successive burger diminishes. Marginal Utility is the utility obtained from the last unit of a product or service. It refers to the additional utility on account of the consumption of an additional unit of a commodity. As utils vary from individual to individual, it cannot be taken as a standard unit for measurement. Therefore, various economists suggested that utility should be measured in monetary terms.

1. All those goods and services which have the capacity to satisfy human wants are said to contain utility in the viewpoint of economics.
2. The preferences of the consumer are known as monotonic preferences.
3. Thus, four utils are more significant than three utils, three utils are more significant than two utils, and so on.

Marketers must understand consumer purchasing behaviour for their products to succeed. Marketers must understand what motivates a consumer to buy a certain product and what prevents him from doing so. To revise these concepts, download the NCERT notes for Class 12 Microeconomics FREE of cost from the Vedantu website (vedantu.com). 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.

We’ll explore key ideas such as utility, the concept of diminishing marginal utility, and the theory of demand. Understanding these concepts helps in analysing consumer choices and market demand. The total utility, TU increases with the increase in the consumption of a commodity as long as marginal utility MU is positive. In this phase, TU increases but at a diminishing rate because MU from each successive unit tends to diminish. When the consumption is increased beyond this point, the point of satiety, TU start falling and MU becomes negative. This relationship between TU and MU is depicted by the diagram given above.

There are different types, like total utility (overall satisfaction) and marginal utility (satisfaction from one additional unit). 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. From the above schedule, we can analyse that in the first sip the person achieves the highest level of satisfaction since the MU is at its highest is nine utils. This happens because of the marginal rate of substitution that gets diminished.