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II. Cardinal Utility a) Assumptions of Cardinal Utility analysis b) Law of Diminishing Marginal Utility c) Law of Equal-Marginal Utility
a) Meaning of Utility b) Cardinal Utility analysis and Ordinal Utility Analysis c) Total Utility and Marginal Utility
Meaning of Utility
I.
Utility means - The power of a commodity that satisfy the wants of consumer - want satisfying power
Utility Analysis
Utils
Law of Diminishing Marginal Utility Quantitative . Subjective entity or Personal Law of Equi-marginal Utility Mashellian Analysis
as rank
Indifference Curve analysis
Unit of Mango 1
Total Utility 10
Marginal Utility
2
3 Marginal Utility is the rate of change of TU from one more unit of extra consumption 4 5 6 7
20
29 37 43 48 51
8
MUn = TUn TUn-1 MU =TU/Q 9 10
52
52 50
Unit of Mango 1
Total Utility 10
Marginal Utility 10
2
3 4 5 6 7
20
29 37 43 48 51
10
9 8 6 5 3
Marginal Utility is the rate of change of TU from one more unit of extra consumption MUn = TUn TUn-1 MU =TU/Q
8
9 10
52
52 50
1
0 -2
I.
Introduction to Utility Analysis a) b) c) Meaning of Utility Cardinal Utility analysis and Ordinal Utility Analysis Total Utility and Marginal Utility
II. Cardinal Utility a) Assumptions of Cardinal Utility analysis b) Law of Diminishing Marginal Utility c) Law of Equal-Marginal Utility
IV. Conclusion
1. Rationality of consumer 2. Cardinal measurability of utility 3. Marginal Utility of Money is constant 4. Diminishing Marginal Utility
Gossen first law According to Alfred Marshall the additional utility which a person derive from the consumption a commodity diminishes, that is Total Utility increase at an diminishing rate
the additional utility which a person derive from the consumption a commodity
diminishes, that is Total Utility increase at an diminishing rate Unit of Mango 1 2 Total Utility 10 20 29 37 43 48 51 52 52 50 Marginal Utility
3 4 5 6 7 8 9 10
the additional utility which a person derive from the consumption a commodity
diminishes, that is Total Utility increase at an diminishing rate Unit of Mango 1 2 3 4 5 6 7 8 9 10 Total Utility 10 20 29 37 43 48 51 52 52 50 Marginal Utility 10 10 9 8 6 5 3 1 0 -2
the additional utility which a person derive from the consumption a commodity
diminishes, that is Total Utility increase at an diminishing rate Unit of Mango 1 2 3 4 5 6 7 8 9 10 Total Utility 10 20 29 37 43 48 51 52 52 50 Marginal Utility 10 10 9 8 6 5 3 1 0 -2
No of mango MU No of mango TU
TU
MU
TU
TU
No of mango
MU
No of mango
MU
1. Bases of law of demand- why demand curve slops downward 2. Law of equi- marginal utility is derived 3. Consumer surplus derived
Law of Equal-Marginal Utility Consumers Equilibrium under Marshellian analysis (Goosens Second Law)
Gossen Second Law Explain how consumer is maximize his satisfaction by allocating his income with
MUx/ = MUy/ = Px Py
MU m
MUx/ = MUy/ = Px Py
. MUn/P n = MU m
Law of Equal-Marginal Utility Consumers Equilibrium under Marshellian analysis Condition for consumer equilibrium
4
5 6 7
36
30 24 18
12
10 8 6
4
5 6 7
45
40 35 20
9
8 7 4
Price of A = 3
Price of B =5
MU of Money = 10
Expenditure = 5x Price of A + 3 X Price B = 5 x 3 + 3 X 5 = Rs.30
Gossen Second Law Explain how consumer is maximize his satisfaction by allocating his income with
Marginal Utility
MU Apple MU Banana 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9
Unit of A
Unit of B
Utility is not Cardinally measurable Marginal Utility of money is not constant Inadequacy of methods of introspection Utilities are n interdependence Failure to explain Giffen Paradox Failure to distinguish income effect and substitution effect
Conclusion
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Thanks