User:Bubburyk

QNO1:

DEFINE UTILITY. EXPLAIN THE RELATIONSHIP BETWEEN TOTAL UTILITY AND MARGINAL UTILITY WITH THE HELP OF SCHEDULE AND DIAGRAM.

CONCEPT OF UTILITY

William Stanley Jevon the great neoclassical economist from (1835-1882) first introduced the concept of utility. He says (jevon)”utility” is the basic on which the demand of an individual for a commodity depends. Utility

Utility is defined as the power of a commodity or service to satisfy human want. Therefore we can say that utility is that satisfaction which is derived from the consumption of the commodity. For instance, water has utility for us because we drink it. Paper has utility for us because we write on it. The nature of utility is subjective. It varies from person to person. What do we mean by utility? In a word utility, utility means satisfaction. More precisely, it refers to how consumers rank different goods and services. If basket A has higher utility then basket B for Saaid, this ranking indicates that Saaid prefers A to B, often. It is convenient to think of utility as the subjective pleasure or usefulness that a person derives from consuming a good or service. But you should definitely resist the idea that utility is a physiological function or feeling that can be observed or measured. Rather utility is a scientific construct that economist use to understand how rational consumers divide their limited. resources among the commodities that provide them with satisfaction. In theory of demand, we say that people maximize their utility, which means that they choose the bundle of consumption goods that they most prefer.

MARGINAL UTILITY: - Marginal utilities mean an additional or incremental utility. Marginal utility is the change in total utility that results from in one unit change in consumption of commodity with in a given period time. For example, when a person increases the consumption of eggs from one egg to two eggs, the total utility increases from 30 utils to 45 utils. The marginal utility here would be 15 utils of the 2nd egg consumed. Marginal utility thus, can also be described as the difference between total utility derived from one level of consumption and total utility derived from another level consumption. In general Mu  =TU /ΔQ It may be noted that as a person consumes more and more units of a commodity, the marginal utility of the additional units beings to diminish but the total utility goes on increasing at a diminishing rate. When the marginal utility comes to zero or we say the point to satiety is reached, the total utility is the maximum. If consumption is increased further from this point of satiety, the marginal utility becomes negative and the total utility beings to diminish. The relationship between total utility and marginal utility is now explained with the help of following schedule and a graph. Schedule showing total utility and	marginal utility.

The above table shows that when a person consumer no apples, he gets no satisfaction. His total utility is zero. In case he consumes one apple a day, he gains seven utils of satisfaction. His total utility is 7 and his marginal utility is also 7. In case he consumes second apple, he gains an extra 4 utils (MU). Thus giving him a total utility of 11 utils from two apples. His marginal utility has gone down from 7 utils to 4 utils because he has a less craving for the second apple. Some is the case with the consumption of third apple. The marginal utility has now fallen to 2 utils while the total utility of three apples has increase to 13 utils (7+4+2). In case the consumer takes fifth apple, his marginal utility falls to zero urils and if he consumes sixth apple also, the marginal utility is reduced to negative (13-14 = -1). It is  –1 utils. The table showing total utility and marginal utility is plotted in figure below:

Graphical Representation of Schedule