This document discusses the economic concept of utility. It defines utility as the want-satisfying power of a good or service. A utility function represents the quantities of goods that provide utility to a consumer. Total utility is the sum of utility from consuming multiple units of a good over time. Marginal utility refers to the additional utility from consuming one more unit of a good. The law of diminishing marginal utility states that marginal utility declines as consumption increases, meaning total utility reaches a maximum at the point where marginal utility is zero.

1. Nasiya v k

2.  Utility
 Jeremy Bentham
 The term utility in economics is used to
denote that quality in a commodity or service
by virtue of which our wants are satisfied.
 In other words, want – satisfying power of a
good is called utility.
 Measurement of utility- util

3.  A utility function is a formula showing the
quantities of goods and services that an
individual consumes .
 U= f(q1,q2)
 U – Total Utility
 q1 and q2 are the quantities of two
commodities

4.  Utility analysis is concerned with the theory of
consumer behavior.
 Approaches
1. Cardinal utility approach(marshal)
2. Ordinal utility approach(hicks and Allen)
3. Revealed preference theory (Samuelsson)

5.  Cardinal : Assigning numerical values to the
amount of satisfaction. Eg: 1,2,3 etc.
 Ordinal : Not assigning numerical values to
the amount of satisfaction but indicating the
order of preferences, that is, what is
preferred to what. Eg: 1st ,2nd ,3rd etc.

6.  Total utility :
 Sum of utility derived by consumer from
multiple units consumed at a point or over a
period of time
• Example: A consumer consumes 3 units of X
and derives utility u1, u2, u3 and u4
 Total Utility Ux= u1 + u2 + u3

7.  As quantity increases total utility increases
 But total utility increases at a diminishing
rate.

8.  Marginal utility: william stanely jevons
 The additional utility gained by consuming
one more unit of the good.
 The change in total utility (∆TU) derived from
one additional unit of consumption (∆X)
 MU = ∆TU/ ∆X

9.  If the marginal utility of the last item is
positive – then total utility will be increasing
 If the marginal utility of the last consumption
is negative – total utility will be falling

10. QUANTITY (Q) Marginal utility
(MU)
Total utility (TU)
1 30 30
2 25 55
3 20 75
4 15 90
5 8 98
6 0 98
7 -10 88
8 -25 63

11.  Total utility is maximised at the point where
Marginal utility is zero.
 Total utility starts to fall when marginal utility
is negative
 This shows the law of diminishing marginal
utility of consumption.
 If you eat too many ice-creams, you start to
get negative utility and the total satisfaction
starts to decline

12. Thank you