utility

2. “Satisfaction received by consumption of any
goods or services.”
 It is expressed as a quantity measured in
hypothetical units which are called
‘utility’.
For example : When we are thirsty and drink
a glass of water that particular glass of
water provides us much satisfaction which in
called utility in terms of economics.

3.  According to ‘Alfred Marshall’ , “the utility of
a quantity of a good is the amount of money
that a consumer is willing to pay for it instead
of defining in terms of subjective units of
‘utility’ .
 According to ‘J.R.Hicks’ , the concept of
ordinal utility is just according to which a
person could give only ranking or order to
the utilities he derived from various goods or
combination of goods.

4.  It depends upon intensity of want
 It is subjective
 It is relative
 It is pyschological
 It is different from pleasure
 It is devoid of social, legal or ethical
implications.

5.  MARGINAL UTILITY: It is the utility derived
from an additional unit of consumption.
 TOTAL UTILITY: It is the sum of all the
utilities derived from the total number of
units consumed.
 AVERAGE UTILITY: It is that utility in which
the total utility derived is divided by the total
number of units consumed.

6. No. Of Units Marginal Utility
(in utils)
Total Utility
(in utils)
Average Utility
(in utils)
1 - 40 40
2 30 70 35
3 20 90 30
4 10 100 25
5 0 100 20
6 -10 90 15
7 -20 70 10
8 -30 40 5

7.  M.U.nth= T.U(n)- T.U.(n-1)
T.U.= M.U.1+M.U.2+.......+M.U.n
A.U.= T.U./n
T.U. Increases till M.U. is +ve
T.U. Is maximum when M.U. is 0(zero)
T.U. decreases when M.U. is –ve
A.U. decreases continuously at the same rate

8. The ‘Law of Diminishing Marginal Utility’ , also
called ‘Law of Satity’ is an important law of
consumption. It was first described by an
Austrian economist ‘H.H.Gossen’, and is named
after him, ‘Gossen’s First Law’.
According to ‘Marshall’, “The additional benefit
which a person receives from a given stock of a
things diminishes with every increase in the
stock that he already has.”

9.  Consumption of goods should be continuous.
 Size of consumption units should be equal.
 All units of consumption should be
homogeneous.
 Prices of goods should be the same.
 Income level of the consumer must be same.
 There should be no change in fashion, nature
and taste of the consumer.
 Goods should be of an ordinary type.
 Only one necessity of a want of a consumer
can be studied at a particular time.