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Unit-3: Consumer Theory–Cardinal Utility Analysis

(Here MU nth = nth Marginal Utility of the unit; TU = Total utility of all the n units consumed; TU n–1 = Notes
n
Total Utility of n–1 units)
MU = Marginal Utility; ΔTU = Change in total utility; ΔQ = Change in the consumption of the commodity.
For Example:
MU of 4th Unit = TU of 4th unit – TU of 3rd unit = 20 – 18 = 2
rd
th
____________________________
_____
______
2 __
Or ΔTU = TU of 4 Unit – TU of 3 Unit = 20–18 = = 2

ΔQ 4 – 3 1 1
(iii) Marginal Utility tends to diminish as more of the commodity is consumed. However, total
utility increases with every additional unit of the commodity consumed till the point when the
marginal utility becomes zero.
(iv) Total utility remains positive while the marginal utility remains Negative or Zero.
(v) Total utility becomes maximum while marginal utility is Zero.
(vi) Marginal Utility determines the rate of change in total utility.
The relationship between Total Utility and Marginal Utility can be expressed diagrammatically Fig. 3.1.
In part ‘A’ and ‘B’ of Fig. 3.1 units of the commodities are shown on OX-axis and utility on OY- axis. In
Fig. 3.1 (A) curve TU represents Total Utility. It is moving upto point ‘F’, which indicates that the total
utility has been rising upto the consumption of 4th unit. From the point F to G the total utility is constant,
which indicates that the consumption of the 5th unit has not made any addition to the total utility. Both
these points signify maximum height of total utility curve. Point ‘G’ represents the maximum total
utility at the 5th unit which is the point of saturation. After point ’G’ the TU curve moves downward
thereby at the 6th unit Marginal utility becomes negative and total utility begins to fall.
Fig. 3.1
Y Total Utility Curve
(A)
FG
20
18
16 TU
14
Total Utility 10
12
8
6
4
2
0
12 34 56 X
Y Quantity
(B)
Marginal
M +ve Curve
Utility
8
Marginal Utility 6 Saturation
Point of
4
Zero M.U.
2
0
12 34 5 6 X
–2
Quantity –ve U

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