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productive activities.
Utility is the want satisfying power of a
commodity.
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.
Features
Utility is subjective : It deals with mental
satisfaction.
Utility is relative: It varies with time and place.
Utility is not essentially useful: A commodity
having utility need not be useful.
Concept of utility
Initial utility: Utility derived from the first unit
of a commodity.
Total utility: The aggregate of utilities
obtained from the consumption of different
units of commodity.
Marginal utility: The change that takes place
in the total utility by the consumption of an
additional unit of a commodity is called
marginal utility.
MU can be positive, negative or zero.
0
1
2
3
4
5
6
TU
0
8
14
18
20
20
18
MU
-8
6
4
2
0
-2
Description
Initial utility
Zero Utility
Negative utility
MEASURE MENT OF
UTILITY
In terms of money- estimates what amount of
Assumptions
Utility can be measured in the cardinal number
system.
MU of money remains constant.
MU of every commodity being used is of same quality
and size.
There is continuous consumption of the commodity.
Suitable quantity of the commodity is consumed.
No change in income.
No change in the price of the commodity and its
substitutes.
No change in the taste, fashion, habits, etc.
Exceptions
Rare things
Misers
Manner of consuming things
at higher rate, then they will have to make the same sacrifice as
persons with less income who at taxed at lower rate.
Advantage to the consumer MU= Price