Utility
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This document summarizes key concepts in managerial economics including: - Cardinal utility which assumes utility can be quantitatively measured in utils. Total utility is the sum of utility from consuming different units of a good. - Limitations of the cardinal utility approach include utility being subjective and non-additive. - Ordinal utility which ranks preferences rather than attaching quantitative measurements. - The law of demand which states that as price increases, quantity demanded decreases, assuming other factors remain unchanged. - Demand schedules and demand curves which graphically depict the relationship between price and quantity demanded.
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For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Tonmoy Halder
Shopna Akter
Bipul Chandra
Mamunur Rahaman
Siam Hossain
Jibon Rahman
Utility
This document discusses the concept of utility in economics. It defines utility as the capacity of a good or service to satisfy human wants. The document outlines several key characteristics of utility, including that it is psychological, individual, relative, and cannot be objectively measured. It also discusses different types of utility related to production and consumption, including form utility, place utility, time utility, service utility, marginal utility, total utility, and average utility. The relationship between marginal utility and total utility is explored, noting that total utility is maximized when marginal utility reaches zero.
Ordinal utility indifference curve properties and MRS
This document discusses the ordinal approach to measuring utility using indifference curves. It provides definitions and properties of indifference curves, including:
1) Indifference curves represent combinations of two goods that provide the same level of satisfaction or utility.
2) Indifference curves have a negative slope and are convex to the origin, showing that goods are imperfect substitutes and the marginal rate of substitution decreases along the curve.
3) Higher indifference curves represent higher levels of satisfaction or utility, as they contain more of one or both goods.
Indifference curve analysis
This document discusses the ordinal utility approach to consumer behavior. It provides 3 key points:
1) The ordinal utility approach differs from the cardinal utility approach in that satisfaction derived from commodities cannot be objectively measured, but can only be ranked qualitatively. Utility is measured in ordinal rather than cardinal numbers.
2) Indifference curves are used to graphically represent combinations of goods that provide equal satisfaction to the consumer. The slope of the indifference curve, known as the marginal rate of substitution, captures the rate at which a consumer will substitute one good for another.
3) Consumer equilibrium is reached when the budget constraint is tangent to the highest attainable indifference curve, meaning the marginal rate of substitution equals the
indifference curve
This document provides an overview of indifference curve analysis for consumer equilibrium. It discusses key concepts such as indifference curves, their properties, assumptions of indifference curve analysis, indifference maps, budget lines, price and income effects, derivation of demand curves, isoquants, iso-cost curves, short-run and long-run costs. The document contains definitions and explanations of these microeconomics concepts as well as examples and diagrams to illustrate them. It is intended as a reference for understanding consumer choice theory and producer theory using indifference curve and isoquant analysis.
Consumer behaviour and utility analysis
This document discusses consumer behavior and utility analysis. It defines consumer behavior as how consumers allocate their income to purchase different goods and services, taking into account prices. It also covers consumer choice and budget constraints, preferences, rational behavior, and the budget constraint. The document then discusses the cardinal and ordinal approaches to analyzing consumer behavior, including concepts like total utility, marginal utility, indifference curves, marginal rate of substitution, and the law of diminishing marginal utility. Graphs and examples are provided to illustrate key concepts in consumer behavior theory.
Theory of consumer behavior cardinal approach
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
cardinal and ordinal utility analysis.
This document discusses cardinal and ordinal utility analysis. It provides details on:
- Cardinal utility which holds that utility can be measured in units, while ordinal utility holds that utility can only be compared between options.
- The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases.
- Total utility, marginal utility, and the relationship between the two. Total utility increases at a diminishing rate while marginal utility decreases.
- The law of equi-marginal utility which explains how a consumer allocates a limited budget across goods to maximize utility by equating marginal utility across goods. Indifference curves and indifference schedules are used to illustrate this
Recommended
Consumer Surplus
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Tonmoy Halder
Shopna Akter
Bipul Chandra
Mamunur Rahaman
Siam Hossain
Jibon Rahman
Utility
This document discusses the concept of utility in economics. It defines utility as the capacity of a good or service to satisfy human wants. The document outlines several key characteristics of utility, including that it is psychological, individual, relative, and cannot be objectively measured. It also discusses different types of utility related to production and consumption, including form utility, place utility, time utility, service utility, marginal utility, total utility, and average utility. The relationship between marginal utility and total utility is explored, noting that total utility is maximized when marginal utility reaches zero.
Ordinal utility indifference curve properties and MRS
This document discusses the ordinal approach to measuring utility using indifference curves. It provides definitions and properties of indifference curves, including:
1) Indifference curves represent combinations of two goods that provide the same level of satisfaction or utility.
2) Indifference curves have a negative slope and are convex to the origin, showing that goods are imperfect substitutes and the marginal rate of substitution decreases along the curve.
3) Higher indifference curves represent higher levels of satisfaction or utility, as they contain more of one or both goods.
Indifference curve analysis
This document discusses the ordinal utility approach to consumer behavior. It provides 3 key points:
1) The ordinal utility approach differs from the cardinal utility approach in that satisfaction derived from commodities cannot be objectively measured, but can only be ranked qualitatively. Utility is measured in ordinal rather than cardinal numbers.
2) Indifference curves are used to graphically represent combinations of goods that provide equal satisfaction to the consumer. The slope of the indifference curve, known as the marginal rate of substitution, captures the rate at which a consumer will substitute one good for another.
3) Consumer equilibrium is reached when the budget constraint is tangent to the highest attainable indifference curve, meaning the marginal rate of substitution equals the
indifference curve
This document provides an overview of indifference curve analysis for consumer equilibrium. It discusses key concepts such as indifference curves, their properties, assumptions of indifference curve analysis, indifference maps, budget lines, price and income effects, derivation of demand curves, isoquants, iso-cost curves, short-run and long-run costs. The document contains definitions and explanations of these microeconomics concepts as well as examples and diagrams to illustrate them. It is intended as a reference for understanding consumer choice theory and producer theory using indifference curve and isoquant analysis.
Consumer behaviour and utility analysis
This document discusses consumer behavior and utility analysis. It defines consumer behavior as how consumers allocate their income to purchase different goods and services, taking into account prices. It also covers consumer choice and budget constraints, preferences, rational behavior, and the budget constraint. The document then discusses the cardinal and ordinal approaches to analyzing consumer behavior, including concepts like total utility, marginal utility, indifference curves, marginal rate of substitution, and the law of diminishing marginal utility. Graphs and examples are provided to illustrate key concepts in consumer behavior theory.
Theory of consumer behavior cardinal approach
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
cardinal and ordinal utility analysis.
This document discusses cardinal and ordinal utility analysis. It provides details on:
- Cardinal utility which holds that utility can be measured in units, while ordinal utility holds that utility can only be compared between options.
- The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases.
- Total utility, marginal utility, and the relationship between the two. Total utility increases at a diminishing rate while marginal utility decreases.
- The law of equi-marginal utility which explains how a consumer allocates a limited budget across goods to maximize utility by equating marginal utility across goods. Indifference curves and indifference schedules are used to illustrate this
Consumer choice theory
1) Consumer choice theory examines how consumers maximize utility given budget constraints. Utility is the satisfaction derived from consuming goods and services, though it cannot be directly measured. 2) Consumers face diminishing marginal utility as consumption increases, and seek to equalize marginal utility per dollar across goods. 3) Consumer equilibrium occurs when marginal utility per dollar is equal for all goods purchased, maximizing total utility for the budget. A change in price alters the equilibrium as consumers substitute goods to restore optimal satisfaction levels.
THEORY OF DEMAND AND SUPPLY
This document defines key economic concepts related to demand and supply, including:
- Demand is the desire and ability to purchase goods, defined by a demand schedule and curve showing the relationship between price and quantity demanded.
- The law of demand states that as price increases, quantity demanded decreases, assuming other factors remain constant.
- Supply is the quantity of a good producers are willing to provide at a given price, defined by a supply curve showing the positive relationship between price and quantity supplied.
- Determinants like tastes, income, and expectations can cause shifts in the demand curve, while costs and technology can shift the supply curve.
Elasticity of demand
This document discusses the concept of elasticity of demand as introduced by Marshall. It defines elasticity of demand as the ratio of percentage change in quantity demanded to the percentage change in price. There are three types of elasticity: price, income, and cross elasticity. Factors that influence elasticity include the nature of the commodity, availability of substitutes, uses, ability to postpone demand, amount spent, time, and price range. Elasticity is important for price fixation, production, distribution, international trade, public finance, and nationalization decisions.
Monopolistic market
Monopolistic competition is an imperfect market structure with many sellers producing differentiated products. Edward Chamberlin is considered the founder of the theory of monopolistic competition. Key characteristics include product differentiation, free entry and exit, and firms having some control over pricing. Examples include fast food, clothing, and hairstylists. In the short run, firms maximize profits by producing where marginal revenue equals marginal cost. In the long run, entry by other firms shifts demand, so firms can no longer price above average costs and earn pure economic profits.
Concept of utility
A self-study presentation on Utility theory. Useful for college and higher secondary students.
Ample examples are provided
Utility
This document defines and explains the economic concept of utility. It begins by defining utility as the ability of a commodity to satisfy human needs. It then discusses how different commodities provide different levels of utility to different people in different situations. It also explains that marginal utility decreases with increasing consumption of a good while total utility increases at a decreasing rate. The document provides examples and formulas to illustrate these concepts. It concludes by discussing the determinants and assumptions of demand and how the law of demand states that demand curves will slope downward, showing an inverse relationship between price and quantity demanded.
Theory consumer choice
1. The document discusses concepts related to consumer choice theory including utility, total utility, marginal utility, budget constraints, indifference curves, and how consumer choices are impacted by changes in income and prices.
2. It provides illustrations of budget constraints, indifference curves, and how consumers optimize their choices of goods at the point where the highest indifference curve is tangent to the budget constraint.
3. It also explains how increases in income shift the budget constraint outward, allowing consumers to consume more goods, and how decreases in price rotate the budget constraint outward and impact substitution between goods.
Utility analysis by Dr. ruchi jain
Introduction of Utility analysis,its types, Law of diminishing Marginal Utility, Law of Equi marginal utility, Consumer surplus
Revealed preference theory
The document discusses the revealed preference theory of consumer demand. It makes three main points:
1. According to revealed preference theory, if a consumer purchases a specific bundle of goods given their income and prices, that bundle is revealed to be preferred to any other affordable bundle.
2. The theory has three axioms: rationality, consistency, and transitivity. It also assumes tastes remain constant.
3. The theory can be used to derive a demand curve by observing how quantities purchased change as prices change, revealing consumer preferences at different price points.
Indifference Curve
Given by J.R. Hicks and R.G.D. Allen.
It is a reconsideration of the theory of Value. Again it was reproduced Indifference Curve theory of Consumer's demand in "Value and Capital" by Hicks.
Price elasticity of demand
It is the degree of responsiveness of quantity demanded of a commodity due to change in price, other things remaining the same.
Consumer surplus
1) Consumer surplus measures how much better off consumers are from purchasing goods that provide them utility, which is the difference between what consumers are willing to pay and the actual price they pay.
2) Consumer surplus can be measured for each unit purchased and is the total surplus from summing the surplus of each individual unit.
3) Graphically, consumer surplus is represented by the area above the price line and below the demand curve up to the quantity purchased. A lower price increases consumer surplus while a higher price decreases it.
Propreties of indifference curves
An indifference curve represents combinations of two goods that provide the same level of satisfaction to a consumer. Indifference curves have several key properties:
1) They slope downward, meaning more of one good requires less of the other to maintain the same satisfaction level.
2) They cannot cross, as a higher curve always provides at least as much satisfaction as a lower curve.
3) They are convex to the origin, never being a straight line or concave shape, due to the rate of substitution between goods.
4) Higher curves represent greater satisfaction levels than lower curves.
Consumer Equilibrium by Indifference Curve Analysis
This document provides an overview of consumer equilibrium through indifference curve analysis. It defines key concepts such as indifference curves, which represent combinations of goods that provide equal satisfaction to a consumer; indifference maps, which depict a consumer's complete preferences through a set of indifference curves; and budget lines, which show the combinations of two goods that can be purchased with a fixed income and prices. It explains that consumer equilibrium is reached at the point where the budget line is tangent to the highest attainable indifference curve, maximizing satisfaction within a limited budget.
Consumer's equilibrium through Utility Analysis and IC Analysis
Consumer's equilibrium can be analyzed using two approaches - utility analysis and indifference curve analysis.
Utility analysis uses the concepts of total utility, marginal utility and marginal utility of money to determine the quantity of a good a consumer will purchase to maximize satisfaction. Indifference curve analysis uses indifference curves to graphically represent combinations of goods that provide equal satisfaction to a consumer. It helps determine the optimal combination of goods a consumer will choose based on their budget.
The key concepts are: (1) Equilibrium occurs when the marginal utility per rupee spent equals the marginal utility of money for each good, (2) Indifference curves depict combinations that provide equal satisfaction, with higher curves indicating greater satisfaction, and (3)
Consumer surplus
Consumer's surplus is the excess of the price that a consumer would be willing to pay for a good over the actual price paid, according to its originator Alfred Marshall. It is measured using indifference curve analysis, which maps consumers' preferences for different combinations of goods through indifference curves that depict equal levels of satisfaction. A consumer achieves equilibrium when their budget constraint is tangent to the highest possible indifference curve, where the marginal rate of substitution between two goods equals the ratio of their prices.
Demand analysis
This document discusses two economic laws: the law of diminishing marginal utility and the law of equi-marginal utility. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from each additional unit decreases. The law of equi-marginal utility states that a consumer will allocate their income across different goods such that the marginal utility per rupee spent is equal for all goods. The document provides explanations, assumptions, and importance of these two laws.
The law of equi marginal utility
This document discusses Gossen's Second Law, also known as the Law of Equi-marginal Utility. The law states that consumers will allocate their limited income across different goods in a way that equalizes the marginal utility per rupee spent. Traditionally, this meant spending to the point where the last rupee spent on each good yields equal satisfaction. Modernly, it means allocating spending such that the marginal utility divided by price is equal for all goods. The law aims to explain how consumers can maximize total utility from a given expenditure.
Consumer Surplus
This document provides an overview of consumer surplus, including its definition, measurement, and applications. Consumer surplus is defined as the difference between the maximum price consumers are willing to pay for a good and the actual market price they pay. It can be measured as the area below the demand curve and above the market price. While consumer surplus generally declines with consumption due to diminishing marginal utility, it provides a measure of economic welfare. The concept of consumer surplus has practical applications in international trade, business pricing strategies, and public policy decisions.
Law of demand
This document discusses demand analysis and forecasting. It defines demand and the three elements of demand. It explains the law of demand and exceptions to the law. It discusses factors that affect increases and decreases in demand. It also covers types of demand, changes in demand, demand forecasting, and elasticity of demand and its types.
market cannibalization
Market cannibalization occurs when a company's new product reduces sales of its existing products by appealing to the same customer base. In the Indian retail market, opening new stores risks cannibalizing existing store sales if customers switch to the new location. However, research on a U.S. fast food chain found that cannibalization effects were small, accounting for only 4-9% of new store sales. While potentially negative, some degree of cannibalization may be an acceptable risk if it helps a company grow its overall market and better meet customer demands.
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1) Consumer choice theory examines how consumers maximize utility given budget constraints. Utility is the satisfaction derived from consuming goods and services, though it cannot be directly measured. 2) Consumers face diminishing marginal utility as consumption increases, and seek to equalize marginal utility per dollar across goods. 3) Consumer equilibrium occurs when marginal utility per dollar is equal for all goods purchased, maximizing total utility for the budget. A change in price alters the equilibrium as consumers substitute goods to restore optimal satisfaction levels.
THEORY OF DEMAND AND SUPPLY
This document defines key economic concepts related to demand and supply, including:
- Demand is the desire and ability to purchase goods, defined by a demand schedule and curve showing the relationship between price and quantity demanded.
- The law of demand states that as price increases, quantity demanded decreases, assuming other factors remain constant.
- Supply is the quantity of a good producers are willing to provide at a given price, defined by a supply curve showing the positive relationship between price and quantity supplied.
- Determinants like tastes, income, and expectations can cause shifts in the demand curve, while costs and technology can shift the supply curve.
Elasticity of demand
This document discusses the concept of elasticity of demand as introduced by Marshall. It defines elasticity of demand as the ratio of percentage change in quantity demanded to the percentage change in price. There are three types of elasticity: price, income, and cross elasticity. Factors that influence elasticity include the nature of the commodity, availability of substitutes, uses, ability to postpone demand, amount spent, time, and price range. Elasticity is important for price fixation, production, distribution, international trade, public finance, and nationalization decisions.
Monopolistic market
Monopolistic competition is an imperfect market structure with many sellers producing differentiated products. Edward Chamberlin is considered the founder of the theory of monopolistic competition. Key characteristics include product differentiation, free entry and exit, and firms having some control over pricing. Examples include fast food, clothing, and hairstylists. In the short run, firms maximize profits by producing where marginal revenue equals marginal cost. In the long run, entry by other firms shifts demand, so firms can no longer price above average costs and earn pure economic profits.
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A self-study presentation on Utility theory. Useful for college and higher secondary students.
Ample examples are provided
Utility
This document defines and explains the economic concept of utility. It begins by defining utility as the ability of a commodity to satisfy human needs. It then discusses how different commodities provide different levels of utility to different people in different situations. It also explains that marginal utility decreases with increasing consumption of a good while total utility increases at a decreasing rate. The document provides examples and formulas to illustrate these concepts. It concludes by discussing the determinants and assumptions of demand and how the law of demand states that demand curves will slope downward, showing an inverse relationship between price and quantity demanded.
Theory consumer choice
1. The document discusses concepts related to consumer choice theory including utility, total utility, marginal utility, budget constraints, indifference curves, and how consumer choices are impacted by changes in income and prices.
2. It provides illustrations of budget constraints, indifference curves, and how consumers optimize their choices of goods at the point where the highest indifference curve is tangent to the budget constraint.
3. It also explains how increases in income shift the budget constraint outward, allowing consumers to consume more goods, and how decreases in price rotate the budget constraint outward and impact substitution between goods.
Utility analysis by Dr. ruchi jain
Introduction of Utility analysis,its types, Law of diminishing Marginal Utility, Law of Equi marginal utility, Consumer surplus
Revealed preference theory
The document discusses the revealed preference theory of consumer demand. It makes three main points:
1. According to revealed preference theory, if a consumer purchases a specific bundle of goods given their income and prices, that bundle is revealed to be preferred to any other affordable bundle.
2. The theory has three axioms: rationality, consistency, and transitivity. It also assumes tastes remain constant.
3. The theory can be used to derive a demand curve by observing how quantities purchased change as prices change, revealing consumer preferences at different price points.
Indifference Curve
Given by J.R. Hicks and R.G.D. Allen.
It is a reconsideration of the theory of Value. Again it was reproduced Indifference Curve theory of Consumer's demand in "Value and Capital" by Hicks.
Price elasticity of demand
It is the degree of responsiveness of quantity demanded of a commodity due to change in price, other things remaining the same.
Consumer surplus
1) Consumer surplus measures how much better off consumers are from purchasing goods that provide them utility, which is the difference between what consumers are willing to pay and the actual price they pay.
2) Consumer surplus can be measured for each unit purchased and is the total surplus from summing the surplus of each individual unit.
3) Graphically, consumer surplus is represented by the area above the price line and below the demand curve up to the quantity purchased. A lower price increases consumer surplus while a higher price decreases it.
Propreties of indifference curves
An indifference curve represents combinations of two goods that provide the same level of satisfaction to a consumer. Indifference curves have several key properties:
1) They slope downward, meaning more of one good requires less of the other to maintain the same satisfaction level.
2) They cannot cross, as a higher curve always provides at least as much satisfaction as a lower curve.
3) They are convex to the origin, never being a straight line or concave shape, due to the rate of substitution between goods.
4) Higher curves represent greater satisfaction levels than lower curves.
Consumer Equilibrium by Indifference Curve Analysis
This document provides an overview of consumer equilibrium through indifference curve analysis. It defines key concepts such as indifference curves, which represent combinations of goods that provide equal satisfaction to a consumer; indifference maps, which depict a consumer's complete preferences through a set of indifference curves; and budget lines, which show the combinations of two goods that can be purchased with a fixed income and prices. It explains that consumer equilibrium is reached at the point where the budget line is tangent to the highest attainable indifference curve, maximizing satisfaction within a limited budget.
Consumer's equilibrium through Utility Analysis and IC Analysis
Consumer's equilibrium can be analyzed using two approaches - utility analysis and indifference curve analysis.
Utility analysis uses the concepts of total utility, marginal utility and marginal utility of money to determine the quantity of a good a consumer will purchase to maximize satisfaction. Indifference curve analysis uses indifference curves to graphically represent combinations of goods that provide equal satisfaction to a consumer. It helps determine the optimal combination of goods a consumer will choose based on their budget.
The key concepts are: (1) Equilibrium occurs when the marginal utility per rupee spent equals the marginal utility of money for each good, (2) Indifference curves depict combinations that provide equal satisfaction, with higher curves indicating greater satisfaction, and (3)
Consumer surplus
Consumer's surplus is the excess of the price that a consumer would be willing to pay for a good over the actual price paid, according to its originator Alfred Marshall. It is measured using indifference curve analysis, which maps consumers' preferences for different combinations of goods through indifference curves that depict equal levels of satisfaction. A consumer achieves equilibrium when their budget constraint is tangent to the highest possible indifference curve, where the marginal rate of substitution between two goods equals the ratio of their prices.
Demand analysis
This document discusses two economic laws: the law of diminishing marginal utility and the law of equi-marginal utility. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from each additional unit decreases. The law of equi-marginal utility states that a consumer will allocate their income across different goods such that the marginal utility per rupee spent is equal for all goods. The document provides explanations, assumptions, and importance of these two laws.
The law of equi marginal utility
This document discusses Gossen's Second Law, also known as the Law of Equi-marginal Utility. The law states that consumers will allocate their limited income across different goods in a way that equalizes the marginal utility per rupee spent. Traditionally, this meant spending to the point where the last rupee spent on each good yields equal satisfaction. Modernly, it means allocating spending such that the marginal utility divided by price is equal for all goods. The law aims to explain how consumers can maximize total utility from a given expenditure.
Consumer Surplus
This document provides an overview of consumer surplus, including its definition, measurement, and applications. Consumer surplus is defined as the difference between the maximum price consumers are willing to pay for a good and the actual market price they pay. It can be measured as the area below the demand curve and above the market price. While consumer surplus generally declines with consumption due to diminishing marginal utility, it provides a measure of economic welfare. The concept of consumer surplus has practical applications in international trade, business pricing strategies, and public policy decisions.
Law of demand
This document discusses demand analysis and forecasting. It defines demand and the three elements of demand. It explains the law of demand and exceptions to the law. It discusses factors that affect increases and decreases in demand. It also covers types of demand, changes in demand, demand forecasting, and elasticity of demand and its types.
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Utility
- 1. SEMINAR Managerial Economics SUB: Cardinal utility and Marginal utility Demand Demand schedule Demand curve
- 2. UTILITY The concept of utility can be looked upon two angles; Product angle utility is the want-satisfying property of a commodity Consumer’s angle utility is the psychological feeling of satisfaction, pleasure ,happiness or well-being , which a consumer derives from the consumption, possession or the use of a commodity.
- 3. Cardinal Utility The cardinal utility approach is propounded by neo-classical economist, who believe that utility is measurable, And the customer can express his satisfaction in cardinal or quantitative number, such 1,2,3 and so on. Utils Utils meaning, the unit of utility. It is the measure developed By the neo-classical economists. Here one utils is equillent to one Rupee and the utility of money remain constant
- 4. Cardinal Utility Analysis The concepts of belong to the field of mathematics Cardinal utility implies that the utility can be measured in quantitative According the concept of cardinal utility, one can measure utility in terms of unit
- 5. TOTAL UTILITY Total utility is the sum of the utility which a consumer derives from the consumption of the different unit of a good The total utility that the consumer derives from the consumption of S unit of good X is Ux=U1+U2+U3+...........+Us
- 6. LIMITATION OF CARDINAL UTILITY APPROACH Assumed that the utility is cardinal , in reality it is subjective Utility assumed to be additive One can not add different types of utility or satisfaction from different goods The utility derived from the consumption of a good was assumed to be independent of the utility from the consumption of another good The marginal utility of money was assumed to be constant , this is not true. The utility theory does not analyse the effect of a change in the price in terms of the income effect and the substitution.
- 7. ORDINAL UTILITY An ordinal no unit of measurement , is ranking only Higher number imply only more preferred In the ordinal utility context maximising utility means choosing that bundle of good that is on the highest indifference curve achievable with given income and price
- 8. DEMAND Relationship between price and quantity Definition; law of demand states the people will buy more at lower price and buy less at higher price, other things remain same -Prof. Samuelson Features; Inverse relationship Price independent and demand variable Income effect and substitution effects
- 9. DEMAND SCHEDULE AND DEMAND CURVE The demand schedule is a table that shows the relationship between the price of the good and quantity demanded The demand curve is a graph of the relationship between the price of a good and the quantity demanded Centeris paribus: “other things remains same”
- 10. DEMAND SCHEDULE PRICE QUANTITY DEMANDED 0 12 .5 10 1 8 1.5 6 2 4 2.5 2 3 0
- 11. DEMAND CURVE Quantity Price 3 2.5 2 1.5 1 .5 0 2 4 6 8 10 12
- 12. Presented by AKHIL LAL P