To draw the curves of total utility and marginal utility, we take total utility from column (2) of Table 1 and obtain rectangles. The MU curve is represented by the increment in total utility shown as the shaded blocks in the figure. Consumers are the ones who make the majority of consumption decisions. A consumer is someone who buys goods and services to fulfil demands. He makes choices about the kinds of items to be bought to fulfil his desires. The primary goal is to maximise satisfaction from the goods and services he purchases with his income.

Up to 5 units of consumption, marginal utility (MU) is decreasing and remains positive. Until the marginal utility (MU) is positive, total utility (TU) surges/rises at a declining rate. According to the law of diminishing marginal utility, as a consumer consumes more units of a commodity, the marginal benefit received from each succeeding unit declines. There is a direct relationship between total utility and marginal utility. Total utility is always based on marginal utility as a total utility (TU) is the summation of marginal utilities. The relationship between TU and MU can be explained with help of the following table.

Our notes will guide you through the essentials of this chapter, aligning with the CBSE Class 12 Economics Syllabus. They provide a clear explanation of theories and practical applications, ensuring you grasp the material effectively. If customers want to buy one more unit of Item 1, they may only do so if they are willing to give up some quantity of another good.

Let us learn what is meant by Total Utility and Marginal Utility. If we sum the utilities obtained from the consumption of different units of a particular commodity at a given time, then we get the numerical value of total utility. If the MU is a positive unit, we may say that the total utility goes on increasing. It means that the consumer is getting positive satisfaction out of each unit consumed. Indifference curves represent different combinations of goods that give a consumer the same level of satisfaction. They help in understanding consumer preferences and how consumers choose between different combinations of goods.

Chapter 7: Producer’s Equilibrium

The second apple will naturally be the second best with lesser amount of utility than the first, and has 15 utils. Ultimately, when the consumption of a commodity is increased beyond the point of satiety, TU starts falling as MU becomes negative. MU is the change in TU caused by the consumption of one extra unit.

Marginal Utility (MU)

The Cardinal Utility Approach employs the concept of “Utility” to determine the level of satisfaction. All those goods and services which have the capacity to satisfy human wants are said to contain utility in the viewpoint of economics. Consumer equilibrium is achieved when a consumer allocates their budget in a way that maximises their total utility, meaning they get the most satisfaction from their spending. The preferences of the consumer are known as monotonic preferences. This is where one bundle has more than the other of one good and not less of the other good in between two bundles. In the diagram, where the IC curve is tangent to the budget line, that is point E is the optimal choice, and also a point of consumer equilibrium.

Relationship Between Total Utility (TU) and Marginal Utility (MU):

The indifference curve is a simple curve that shows the different combinations of two goods. Each of the combinations will offer the sale satisfaction level to the consumer. Movement along a demand curve occurs when changes in quantity sought are connected with variations in commodity price. When the consumer buys apples he re­ceives them in units, 1, 2, 3, 4 etc., as shown in Table 1. TU increases with an increase in the consumption of a commodity and as long as MU is positive.

When the consumer consumes 2nd unit of goods, TU increases to 18 utils from 10 utils and MU decreases to 8 utils. Accordingly, when the consumer consumes the 6th unit of goods, MU decreases to zero where TU becomes maximum (30 utils). After the 6th unit consumption of goods, MU is negative (-2) and due to negative MU, total utility declines to 28 utils from 30 utils.

1. Util is assumed as a unit for measuring the satisfaction derived from a commodity.
2. In this phase, TU increases but at a diminishing rate because MU from each successive unit tends to diminish.
3. To achieve the highest level of satisfaction, a consumer must follow certain rules or principles since resources are limited in nature in comparison to limitless demands.
4. MU is not uniformly applicable to all kinds of commodities or activities.

When two things are consumed concurrently, satisfaction can be compared at best. Due to this drawback, utility analysis is shown to have minimal application in describing consumer equilibrium. Total Utility determines the overall satisfaction obtained after consuming every single unit of that commodity.

Utility is a relative concept, this means that it differs from individual to individual, from location to location, and from period to period. It is the representation of negative utility and total utility declines. In the above example, we have already seen that the marginal utility and the total utility are the interlinked concepts. It’s a social science that studies how commodities and services are produced, distributed, consumed, and traded. The decisions made by private citizens, corporations, governments and nations are observed when allocating resources. In other words, it’s the study of scarcity, the study of how people utilise resources and respond to incentives or the study of decision making.

A linear demand curve’s elasticity may be simply assessed graphically. The elasticity of demand at each point on a straight line demand curve is determined by the ratio between the demand curve’s lower and upper segments at that position. Elasticity of demand is measured at any location by dividing the length of the lower segment of the demand curve by the length of the upper segment of the demand curve at that point. At the midpoint of any linear demand curve, the value of ed is unity. In his estimation, the first apple is the best out of the when mu is falling tu is lot available to him and thus gives him the highest satisfaction, measured as 20 utils.