2. CONSUMER
A Consumer is one who consume goods and services for satisfaction of his
Wants.
Consumer is the seeker of Satisfaction.
3. (TU) → Total Utility: It is the sum total of utility derived from
consumption of all units of a commodity.
(MU) → Marginal Utility: It is the change in TU due to consume of an
additional units.
Utility is the wants satisfying capacity of a commodity.
CARDINAL APPROACH
4. Law of Diminishing Marginal Utility
As we consume more and more units of a commodity then the marginal
utility derives from each an additional unit goes on diminishing.
Marginal utility always falls, zero and negative.
Assumptions
(i)
(ii)
(iii)
Consumer is rational.
Applicable in Cardinal approach
Only standard units of the commodity are consumed like cup of tea, not a
spoon of tea.
(iv) Continuous consumption of Homogeneous commodity, not that one unit of
the commodity is consumed now an another on tomorrow.
6. Relationship between TU & MU
1) As TU increases Mu is positive
2) As TU falls MU is negative
3) As TU is maximum (Saturation point)
MU is zero
(point of Satiety)
8. Consumer Equilibrium in Case of Utility Approach
(a) In case of single commodity: In this case consumer Consumes only one
commodity
Equilibrium is the point where the consumer is getting the maximum
satisfaction with his given income.
In this case consumer is equilibrium at a point where the marginal utility of X
commodity is equal to price of X commodity
9. No. of units MUx Px
1 10 6
2 8 6
3 6 6
4 4 6
Schedule and Diagram
10. (b) In Case of Double Commodity: In this case consumer consumes two
commodity X and Y.
In case of any one commodity, say X a consumer is in equilibrium when (1)
Similarly in case of commodity Y consumer is in equilibrium when (2)
11. So relating equation (1) and (2)
We consider a situation when a consumer, both commodities X and Y, we
can say
Here marginal utility per rupee must be the same for both. Consumer is in
equilibrium when ratio of their marginal utilities is equal to the ratio of their prices.
12. Units Mux MUy
1 7 8
2 5 6
3 4 4
4 2 3
5 1 2
Schedule and Diagram
