Utility analysis of demand

                                       UTILITY

Utility is a mental feeling of a person who expects to derive satisfaction from consuming a particular goods and service. for example if you are thirsty so water will give you utility.

 

utility is measured in numerical terms known as utils

 

if a person gets 5 utils on consuming 1 ice-cream. Then he will get 10 utils for consuming it again

 

Marginal utility-- marginal utility is the addiction to total utility due to consumption of one more unit of the commodity

 

like 1st cake gives total 5 utils satisfaction. same cake eatan 2nd time give 11 utils satisfaction and 3rd time it gives only 15 utils satisfaction

so marginal utility was in 1st time it was 5 and in 2nd time 6 utils because it is the change in utils occur and in 3rd time it came 4 utils

 

Total utility-- Total utility is the amount of utility derived from the consumption of all the units at the disposal of the consumer.

 

like in that cake example total utility was 5,11,15 utils

 

  in this diagram TU is total utility and MU  is marginal utility

 

Law of diminishing marginal utility

 

It means the more we have of a thing, the less we want additional increment of it or the more we want not to have additional increments of it

 

for example- if a person is thirsty he needs water ,he drank 1st glass of water and then he drank 2nd glass now at third glass he will be not so much satisfy on it and in forth glass he will don't like it his satisfaction will be over

 

Assumption of ldmu

 

1-constant taste- every time the person consumes the unit he taste must be same of all units,different taste will affects the utils . for example If a person eats burger then he eat pizza there will be change in both utils

 

2-contant income-there should not be any change in the income of the consumer

 

3-time should remain unchanged--this law will apply only when the consumption is going on same time

 

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now  at the diagram we can see tu is increasing and then from e point to f it is constant after f it started diminishing

 

and mu is dimsing at e point it is at 0 and then it came in - values

 

this is due to when we consume the unit again and again our satisfaction keeps decreasing

 

after a while we don't want to consume that products when tu started diminishing and mu became negative

 

tu increases mu diminishes

 

tu stop at a point and remain constant mu will be a 0

 

tu stated diminishing mu will be on negative