This document discusses concepts related to consumer behavior and utility analysis in economics. It defines key terms like total utility, marginal utility, and introduces important laws like the law of diminishing marginal utility and the law of equi-marginal utility. Specifically, it provides definitions of total utility and marginal utility. It explains the relationship between total utility and marginal utility through schedules and diagrams. It also outlines the assumptions, statement, exceptions and importance of the law of diminishing marginal utility and the law of equi-marginal utility.

1. Consumer’s
Behaviour
Consumer’s
Behaviour

2. Individual tries to satisfy his wants
Human wants are unlimited
Utility analysis – want satisfying efforts
Economics
“utility means want satisfying power of a commodity”
“utility is the capacity of a commodity to satisfy human
want”. ……….. Prof. Stanley Jevons
Introduction

3. Relative concept
Subjective concept
Ethically neutral
Utility and usefulness are not same
Not same as pleasure
Utility differs from satisfaction
Not easily measurable
Depends upon intensity of want
It is the basis of demand
Features of Utility

4. Types of Utility
Form utilityForm utility
Place utilityPlace utility
Time utilityTime utility
Ownership utilityOwnership utility
Service utilityService utility
Knowledge utilityKnowledge utility
Nature utilityNature utility
Kashmir
Kokan

5. Concepts of Utility
Concepts of Utility
Total Utility Marginal Utility

6. “Total Utility refers to the sum of utilities derived
form the consumer from all units of commodity
consumed”.
Aggregate of utilities
All successive units of commodity
TU = ∑ MU / TUn = MU1 + MU2 + MU3
TU = Total Utility, MU = Marginal Utility
Total Utility
Total Utility Schedule
Units of
Commodity
TU Units
1 8
2 14
3 18
4 20
5 20
6 18 o X
Y
1 2 3 4 5 6
4
8
12
16
20
units of
commodity
units of
commodity
TotalUtilityTotalUtility
DiagramDiagram
TU curveTU curve

7. “it refers to the additional utility derived by a
consumer from additional unit of a commodity
consumed. It is the utility from the last unit of a
commodity”.
MU is the addition made by last unit to TU.
MUn = TUn-TU(n-1)
Total Utility
Total Utility Schedule
Units of
Commodity
MU Units
1 8
2 6
3 4
4 2
5 0
6 -2
o X
Y
1 2 3 4 5 6
2
4
6
8
units of
commodity
units of
commodity
MarginalUtilityMarginalUtility
DiagramDiagram
MU curveMU curve
-2

8. Relationship Between TU & MU
Units of
Commodity
TU
Units
MU
Units
1 8 8
2 14 6
3 18 4
4 20 2
5 20 0
6 18 -2
TU and MU Schedule
o X
Y
units of
commodity
units of
commodity
1 2 3 4 5 6
4
8
12
16
20
MarginalUtilityMarginalUtility
DiagramDiagram
-2
MU curveMU curve
TU curveTU curve
Point of
Satiety
Disutilit
y

9. Introduction
Behavior of the consumer
Relation to consumption
First Proposed : Mr. Gossen – Gossen’s first Law
Further explained : Prof. Alfred Marshall
Name of book : Principles of Economics – 1890
Basis of Law : satiability characteristics of human
wants
The law of Diminishing Marginal Utility
Dr. Alfred MarshallDr. Alfred Marshall

10. Statement of Law : Other things being equal “The
additional benefit which a person derives from a given increase in
the stock of a thing diminishes with every increase in the stock that
he already has” ………Dr. Alfred Marshall
The law of Diminishing Marginal Utility
Units of
Commodity
MU
Units
1 8
2 6
3 4
4 2
5 0
6 -2
MU Schedule
o X
Y
1 2 3 4 5 6
2
4
6
8
units of
commodity
units of
commodity
MarginalUtilityMarginalUtility
DiagramDiagram
MU curveMU curve
-2
Disutility

11. Assumptions
Homogeneity
Single use
Cardinal measurement
Rationality
Continuity
Reasonability
Constance
Divisibility
The law of Diminishing Marginal Utility

12. The law of Diminishing Marginal Utility
Exceptions
Hobbies
Misers
Drunkard
Music
Reading
Money

13. Limitations / Criticism
Unrealistic assumptions
Cardinal measurement
Indivisible goods
Constant marginal utility of money
A single want
The law of Diminishing Marginal Utility
Assumptions
Homogeneity
Single use
Cardinal measurement
Rationality
Continuity
Reasonability
Constance
Divisibility
Assumptions
Homogeneity
Single use
Cardinal measurement
Rationality
Continuity
Reasonability
Constance
Divisibility
Very
Testy

14. The law of Diminishing Marginal Utility
Theoretical importanceTheoretical importance Practical importancePractical importance
Paradox of value
Universal Truth
Basis of law of demand
To Consumer
To the Government
To Producer
To Monopolist
For welfare Measure
Importance / Significance
of the Law
Importance / Significance
of the Law

15. Introduction :
Developed by : Alfred Marshall
Basis of Law : Three characteristics of wants –
comparable, substitutable & complementary
Statement of Law : other things being equal
“A consumer gets maximum total utility from spending his income,
when the marginal utility derived from the last unit of money, spend
on each commodity tend to be equal”……….Alfred Marshall
law of Equi-Marginal Utility

16. law of Equi-Marginal Utility
Equi-Marginal Utility ScheduleEqui-Marginal Utility Schedule
Units of
Com
-modity
MU
‘A’
Ratio = MU
‘B’
Ratio = MU
‘C’
Ratio =
1 24 30 32
2 20 24 24
3 16 18 16
4 12 12 08
5 8 6 00
= = = MUm

17. law of Equi-Marginal Utility
Consumer expenditure
Commodity Units Price Amount Spent
(Units X Price)
A 4 2 8
B 3 3 9
C 2 4 8
Total 25
= = = MUm
= = = MUm
6 = 6 = 6
TU derived = TUA → 24+20+16+12=72TU derived = TUA → 24+20+16+12=72
TUB → 30+24+18+12 unitsTUB → 30+24+18+12 units
TUC → 32+24 = 56 unitsTUC → 32+24 = 56 units
Total utility 200 unitsTotal utility 200 units

18. Assumptions
Measured cardinally
Rationality
No change in income
Homogeneity
Constancy of money
Knows MU schedule &
price
Exceptions
Unrealistic assumption
Change in income
Other exceptions
law of Equi-Marginal Utility

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