2. SUB -TOPICS
WILL BE EXPLAINED BY
1.DEFINATION / INTRODUCTION OF ALL SUB TOPICS :- NANDINI
2. TOTAL UTILITY & MARGINAL UTILITY :- HARSH
3. RELATIONSHIP BETWEEN TOTAL UTILITY & MARGINAL
UTILITY :- JANVI
4. LAW OF DIMINISHING MARGINAL UTILITY
(GRAPH PRESENTATION) :- JUSTIN
5. CAUSES OF DIMINISHING MARGINAL UTILITY :- MAYANK
3. WHAT IS CARDINAL UTILITY
CADINAL UTILITY IS GIVEN BY
ALFRED MARSALL .HE BELIEVES
THAT WE CAN
MEASURE SAISFRACTION IN TERM OF
CARDINAL NUMBERS LIKE 1,2,3,4,5
etc.
THE STANDARD UNIT OF
MEASUREMENT USED BY MARSHALL
TO MEASURE THE UTILITY IS CALLED
UTILS.
4. 1) TOTAL UTILITY & MARGINAL UTILITY
2) RELATION SHIP BETWEEN TOTAL UTILITY AND
MARGINAL UTILITY
3) LAW OF DIMINISHING MARGINAL UTILITY –
PRESENTING BY GRAPH
4) CAUSES OF DIMINISHING MARGINAL UTILITY .
FURTHER IN THIS TOPIC IT IS
CLASSIFIED AS :-
5. • LAW OF DMU STATES THAT AS WE CONSUME MORE
AND MORE UNITS OF A COMMODITY, THE UTILITY
DERIVED FROM EACH SUCCESSIVE UNIT GOES ON
DIMINISHING.
• LAW OF DMU HAS UNIVERSAL APPLICABILITY AND
APPLIES TO ALL GOOD AND SERVICES.
• IT IS ALSO KNOWN AS GOSSAN'S FIRST LAW OF
CONSUMPTION AS IT IS GIVEN BY A GERMAN H.H.
GOSSEN.
LAW OF DMU
6. ASSUMPTIONS
OF
LAW OF DMU
1.CARDINAL MEASUEMENT OF UTILITY.
IT IS ASSUME THAT UTILITY CAN BE MEASURED AND A CONSUMER CAN
EXPRESS HIS SATISFRACTION IN QUANTITATIVE TERMS.
2.MONETARY MEASUREMENT OF UTILITY.
IT IS ASSUME THAT UTILITY IS MEASURED IN MONETARY TERM.
3.CONSUMPTION OF REASONABLE QUANTITY.
IT IS ASSUME THAT REASONABLE QUANTITY OF A COMMODITY IS CONSUMED.
7. 4.CONTINOUS COSUMPTION:
IT IS ASSUMED THAT CONSUMPTION IS A CONTINOUS PROCESS.
5.NO CHANGE IN QUANTITY:
IT IS ASSUME THAT QUANTITY OF A COMMODITY IS UNIFORMED.
6.RATIONAL CONSUMER:
THE CONSUMER IS ASSUMED TO BE RATIONAL.
A CONSUMER COMPARE THE UTILITIES OF DIFFERENT COMMODITIES AND AIMS
AT MAXIMIZING TOTAL SATISFRACTON.
7.FIXED INCOME AND FIXED PRICES:
IT IS ASSUMED THAT INCOME OF THE CONSUMER AND PRICES OF GOODS
REMAINS CONSTANT.
8. EXAMPLE OF DIMINISHING
MARGINAL UTILITY
ONE EXAMPLE OF
DIMINISHING MARGINAL
UTILITY IS FOOD.THE FIRST
BITE OF FOOD WILL
PROVIDE THE HIGHEST
LEVEL OF
SATISFRACTION,AND EACH
ADDITIONAL BITE WILL
PROVIDE A LOWER LEVEL
OF SATISFRACTION
ANOTHER EXAMPLE IS
ENTERTAINMENT .THE
FIRST HOUR OF
ENTERTAINMENT WILL
PROVIDE THE HIGHEST
LEVEL OF SATISFRACTION ,
EEACH ADDITIONAL HOUR
WILL PROVIDE A LOWER
LEVEL OF SATISFRACTION
10. EXPLANATION
IN THE ABOVE DIAGRAM ,THE UNITS OF APPLE DISTROYED ON THE
X-AXIS AND MU ON Y-AXIS .
THE RECTANGLES(WHICH REPRESENT EACH LEVEL OF
SATISFRACTION)GET SMALLER AND SMALLER WITH INCREASE IN
CONSUMPTION OF APPLE.
MU DECREASE FROM 25 TO 17 AND THEN TO 12 UTILS,WHEN
CONSUMPTION IS INCREASED FROM ONE TO SECOND AND THIRD
THE FIFTH APPLE IS THE POINT OF SATIETY AND HAS NO
UTILITY(MU=0)
WHEN SIXTH APPLE IS CONSUMED ,MU TURNS NEGATIVE.
