presenation on WTO with certain real example and basic understanding of the wto...

2. Utility is a term used by economists to describe the measurement of
"useful-ness" that a consumer obtains from any good.
it is the want satisfying power of any commodity or capacity of a commodity
to give satisfaction.
For eg:
Ram’s mother needs to take Ram to school. She can either walk or drive.
Ram's mother considers the benefits of exercise and fresh air, which
compose the utility she would derive from walking, and also considers the
time savings and comfort of driving, so after that Ram's mother decides to
drive.

3. There are basically two principal theories for the utility :
cardinal utility
ordinal utility.
 Cardinal utility: Many traditional economists hold the view that utility is
measured quantitatively, i.e. 1, 2, 3 ,length, height, weight, temperature, etc.
Here we uses marginal utility analysis.
 Ordinal utility: it is propounded by the modern economists, J.R. Hicks, and
R.G.D. Allen.
For example: Suppose a person prefers tea to coffee and coffee to milk. Hence,
he or she can tell subjectively, his/her preferences, i.e. tea > coffee > milk

4. Marginal utility is the additional satisfaction a consumer gains from consuming one more
unit of a good or service.
Two types of marginal utility are:
Positive marginal utility
Negative marginal utility
Law of Diminishing Marginal Utility:
"Other things remaining the same when a person takes successive units of a
commodity, the marginal utility diminishes constantly".
Assumptions:
 The utility is measurable and a person can express the utility derived from a
commodity in qualitative terms such as 2 units, 4 units and 7 units etc.
 It is necessary that a standard unit of measurement is constant
 The taste of the consumer remains same during the consumption o the successive
units of commodity.
 Income of the consumer remains constant during the operation of the law of
diminishing marginal utility

5. Exceptions or Limitations:
The limitations or exceptions of the law of diminishing marginal utility
are as follows:
1.The law does not hold well in the rare collections. For example,
collection of ancient coins, stamps etc.
2.The law is not fully applicable to money.
3.It does not apply to the knowledge, art and innovations.
4.The law is not applicable for precious goods.
5.Historical things are also included in exceptions to the law.
6.Law does not operate if consumer behaves in irrational manner

6. Units of
commodity
Marginal
utility
Total utility
1st glass 10 10
2nd glass 8 18
3rd glass 6 24
4th glass 4 28
5th glass 2 30
6th glass 0 30
7th glass -2 28
Explanation With Schedule and Diagram:
1 2 3 4 5 6 7
MU 10 8 6 4 2 0 -2
TU 10 18 24 28 30 30 28
10
8
6
4
2
0
-2
10
18
24
28
30 30
28
-5
0
5
10
15
20
25
30
35
Utility
Units
Chart Title
MU TU

7. The indifference curve is the graphical representation of different
combinations of goods (generally two), for which the consumers are
indifferent, in terms of the overall satisfaction and the utility.
1. Two commodities:
It is assumed that the consumer has fixed amount of money, all of
which is to be spent only on two goods.

8. 2. Non satiety:
Satiety means saturation. And, indifference curve theory assumes that the
consumer has not reached the point of satiety. It implies that the consumer
still has the willingness to consume more of both the goods.
3. Ordinal utility:
According to this theory, assumes that a consumer can express utility in
terms of rank.
4. Diminishing marginal rate of substitution:
Marginal rate of substitution may be defined as the amount of a commodity
that a consumer is willing to trade off for another commodity.

9. Properties of IC
1.Indifference curve slope downwards to right:

10. 2) Indifference curve is convex to the origin
Table: Indifference schedule
Combination Cigarette Coffee
A 1 12
B 2 8
C 3 5
D 4 3
E 5 2
We can clearly see that the rate of decrease in
consumption of coffee is not the same as rate of
increase in consumption of cigarette

11. 3) Indifference curve cannot intersect each other
The level of satisfaction of consumer for any given combination of two
commodities is same for a consumer throughout the curve. Thus, indifference
curves cannot intersect each other.

12. Higher indifference curve represents higher level of
satisfaction