SPECIAL ASSIGNMENT ON CRITICAL THINKING ESSAYS (SACE)

TABLE OF CONTENTS

SACE-I.......................................................................................................................................1
Answer 1:................................................................................................................................1
Roots of Economics:...........................................................................................................1
Definitions:.........................................................................................................................3
Economics and Law:...........................................................................................................7
Conclusion:.........................................................................................................................8
References:.................................................................................................................................9
SACE-II....................................................................................................................................10
Answer:.................................................................................................................................10
Demand:............................................................................................................................10
Law of Demand:...............................................................................................................11
Demand Schedule and Demand Curve:............................................................................13
Exceptions of the Law of Demand:..................................................................................14
Elasticity:..........................................................................................................................16
Law of Diminishing Marginal Utility:..............................................................................17
Example:...........................................................................................................................18
REFERENCES.........................................................................................................................19
 SACE-I

Answer 1:
In order to analyse the question at hand and give a conclusion regarding having a separate
definition for ‘economics and law’ in the literature of economics, we first need to go about
the root and meaning of economics then discuss the various definitions of economics
provided by renowned and learned economists in detail. Having done so, a brief discussion
on the scope of the subject’s applicability in accordance with law and an informed opinion on
the same need to be furbished. This is going to be the flow of the analysis.

Roots of Economics:
The English word economics is taken from the Greek word ‘oikonomos’ or ‘oikonomia’,
‘oikos’ in Greek means household and ‘nomos’ means management.1

Here, the term household refers to an individual or set of individuals dealing in the society
with the daily chores of production of goods, distribution for consumption, exchange of good
for commodities/currency and finally consumption for satisfaction. While management deals
with the regulation of the aforementioned activities of production, distribution, exchange and
consumption along the law of the land.

This further leads to another point, micro/individual issues and macro/collective issues for
such distinction, economics can be interpreted as microeconomics when it deals with the
problems of an individual or a group of individuals and as macroeconomics when it deals
with the state/nation as a whole (singular entity).

The activities mentioned above can be said as human activities, which in the subject can be
divided into two parts, namely: 1. Economic Activities2;
2. Non- Economic Activities3.

Economic activity can further be sub-divided into four part:

1
Pal, D. Top 4 Definitions of Economics (With Conclusion). Retrieved 22 January 2021, from
<https://www.economicsdiscussion.net/economics-2/definitions/top-4-definitions-of-economics-with-
conclusion/14134>.
2
Economic activity means any act done in order to obtain in exchange for a good or currency (money) and other
good in order to fulfil the need of the individual generally carried on to generate income and obtain satisfaction
by spending a part of or full of the income earned through such activities.
3
Non-economic activities are acts done without the thought or consideration of any want/ need generally, for
pleasure and affection. Main aims of such activities are to improve the standard of living, increase the earnings
and betterment and balance of mental and physical capacities of people.
 1. Production4;
2. Distribution5;

3. Exchange6;

4. Consumption7.

According to these aspects, economics can be considered a social science which studies all
the above-mentioned parts of economic activity.

The economists have not come to a conclusion in determining the definition as well as nature
of economics. However, the most widely accepted definition positioned it as a social science.
In this respect, Economics is considered as the queen of all social sciences as it has a very
large scope which covers within itself individuals, group of individuals (as a nation/state), the
ruler(s) and the subjects i.e., each and every being both living and non-living on the planet.
According to this, economics is a social science because it studies about individuals living in
a society while carrying out economic activities in order to maximise their monetary and/or
other material gains.

Since the subject deals with individuals, it is evident that it will definitely deal with their
choices, behaviour, reaction to an economic stimuli and other psychological parts of human
mind as well. Taking this into consideration, economics also refers to the subject which
studies the activities and behaviour patterns of people living in a society and their
observation, thinking and evaluation of prospect of gaining the maximum from what is
available to them (resources).

Delving deeper into the above meaning of economics, it is some or the other way is
connected not only to the availability of resources but also to the peripheries of the four main
concepts of economic activities. Thus, it can be said that it is a branch of knowledge which
gives insights on human activities along with various aims of human activities (economic
activities to be particular) like wealth generation, welfare in living standard and income, the
critical analysis of needs and the ways in which the limited available resources can be used to
fulfil the required needs.

4
Production refers to the process of conversion of raw goods into finished one’s from which an individual or
group can derive satisfaction or pleasure.
5
Distribution refers to the process of transportation or supply of the finished goods for consumption.
6
Exchange refers to the transfer of a particular amount of a commodity being delivered in lieu of the finished
goods (this commodity can be money or some other good which maybe finished or unfinished).
7
Consumption refers to the process of usage of the good for satisfaction or fulfilment of needs.
Definitions:
The study of the subject of economics has such a wide scope that the economists haven’t as
of yet come to a conclusive definition. Till the late fifteenth and the early sixteenth century,
the subject was considered as study of household management after which it gradually
evolved into the ‘study of wealth’ and finally into the ‘study of overall growth’ by the late
twentieth century.

The definitions of economics can be broadly divided into four parts:

1. Wealth-oriented definition (Classical Definitions).

2. Welfare-oriented definition (Neo-classical Definitions).

3. Scarcity-oriented definition (New Definitions).

4. Growth-oriented definition (Modern Definitions).

Wealth-oriented Definition (1776):

It is called the classical definition as it was the base on which other economists built upon.
The chief proponent of such theory was Adam Smith, a great Scottish economist and
considered to be father of Economics, who in his book “An Inquiry into the Nature and
Causes of the Wealth of Nations” published in 1776 commonly known as “Wealth of
Nations” defined economics as “a science of wealth” or simply it is related ‘to the laws of
production, exchange, distribution and consumption of wealth’. It was after this definition
that economics was looked as a separate branch of study and extensive research on the same
started.

Features:

1. Introduction of the concept of economic man

The definition gave rise to the concept of man being not only a social and
political but also an economic person. This meant that he took part in all
the four aspects of economic activities which made all of them fall under
the subject matter of economics.
2. Gave importance to materialistic commodities
The definition proposed that economics is related to materialistic things
such as money and good only.

Criticisms:
 1. The definition is ignorant towards non-economic activities and services.
2. The sole focus of the theory is on the sellers, consumers are duly ignored
and thus, the definition is one sided.

3. It projects economics as a science of the selfish as it discusses the mean

part of the subject i.e., the self interest of man which in turn is wealth
generation further this would render misery and the wealth would be
concentrated in the hands of a few.

4. Fails to throw light on the sources of wealth/income generation and

proceeds to its application.

5. Omits many important parts economics related to day-to-day lives like

poverty, scarcity of goods/resources, choice and the choice pattern of
people, etc.

Welfare-oriented Definition (1890):

Alfred Marshall, a renowned British scholar and economist of the neo-classical times (termed
so as the economists of this time and school were against considering economics as a science
of wealth only), in his book titled “Principles of Economics” published in 1890, thought of
Economics to be defined as "a study of mankind in the ordinary business of life" further he
quoted "it examines that part of individual and social action connected with the attainment of
material requisite of well-being i.e., welfare." This made Economics not only a study of
wealth but of man too, where ‘human welfare was of more importance than wealth’. Thus,
making economics more of a social science subject than a fundamental science one.

Features:

1. The foremost of all features is that it gave required importance to the

welfare of man as the chief concern of economic activity.
2. It paved way for economics to be a social science subject by emphasising
on the study of real man (ordinary business of life).

3. It establishes and emphasises on the difference between wealth and

welfare. Wealth is the source which is used to reach the ultimate goal
which is welfare.
 4. Welfare is measured in terms of materialistic things (like money, goods
and services).

Criticisms:

1. Presents welfare as materialistic and the term is very vague with respect to
economic activities of individuals. However, there are many activities
which are not materialistic but promote welfare (by Lionel Robbins).
2. Welfare being an abstract concept cannot be measured in terms of money
as welfare for one may not be for another. Also, it can only be judged on
the basis of desirability and the outcome of such act.

3. Importance of choices in using the resources is ignored as the resources on

earth are limited and cannot possibly be used for any and every need of
ours.

Scarcity-oriented definition (1932):

In his book titled “An Essay on the Nature and Significance of Economic Science”, published
in 1932, Lionel Robbins (), defined economics as “a science which studies human behaviour
as a relationship between ends and scarce means which have alternative uses.” This definition
gave three basic propositions namely:

1. Ends which refers to the human wants and desires;

2. Means which refers to the resources one can use to fulfil those wants (ends) also it
proposes that means are scarce or limited in quantity;

3. Alternative uses which refer to the other manners in which the resource could have
been used, meaning the individual/group has to make a choice as to which want it has
to address first.

Thus, he sought to make economics a part of pure/fundamental science subjects by calling

the analytical and scientific element into the scope of the subject.

Features:

1. The definition has a broader application than any of the other definitions
provided before it had as it took not only human behaviour but also choice
into the scope of the subject apart from the wants of human beings.
 2. It is more scientific in nature as there is a clear-cut cause (unlimited wants
and scarcity of resources) and effect (choices/alternative uses) relationship
and involves rational decision-making process as one has to choose wisely
and rationally between his/her wants.

3. Since the resources are limited and general conduct of individuals and
groups tend to give more stress on best possible outcome or in this case
satisfaction so, it is the best example of optimal resource utilisation.

Criticisms:

1. It ignores the fact that not every resource is scarce in nature. Also, a
resource at a place may be scarce and the same resource may be abundant
at another.
2. It is based on human behaviour which in itself is unpredictable like if one
wants to buy a car and does not have enough money, he has the option to
switch over to another want of his.

3. Ignores the fact that rich individuals/groups/countries can buy anything

they want easily as scarcity of money (means) is generally absent there.

4. It narrows down the scope of the subject as it does not take into account
the dynamics of changing wants and the thought process of human beings
both as individuals and as groups.

Growth-oriented definition (1948):

In the book titled “Economics: An Introductory analysis”, Paul A. Samuelson while in

disagreement with the previously provided definitions wrote of economics as “a study of how
people and society end up choosing with or without the use of money, to employ scarce
productive resources that could have alternative uses, it produces various commodities over
time and distribution of these for consumption, now or in the future, among various persons
and groups in the society. It analyses costs and benefits of improving patterns of resource
allocation.” Thus, he in this definition reached out to the dynamic nature of the subject,
various aspects of economic activities, the limited resources and the unlimited needs/wants
all at the same time, which is enough to at least for now cover the subject matter of
economics.

Features:

1. It made economics a dynamic subject by bringing into light the changing

resources and needs.
2. It formed the base for the concept of sustainable development.

3. Made the subject a combination of both arts and science by employing the
combination of choices and the other aspects of economic activities along
with proper stress on good and services part.

4. Gives proper stress not only on present but also on future.

5. Acknowledges employment of both materialistic and non-materialistic

means for human welfare.

Economics and Law:

Economics and law are both quite intertwined subjects as both study the thought process of
individuals in a society. Also, since the very beginning economics is considered as a study of
state’s affairs also, so only the activities which have legal support can be considered in while
studying about the economy of a country. This legal support can range from structure of the
framework to implications of such laws and measures. While discussing about law of the land
one cannot ignore the importance of the constitution of the country, particularly in case of
India there are expressed provisions for the same. The preamble to the constitution provides
for social, political and economic justice and equality it is essential in order to alleviate the
standard of living of every stratum of the society and for the same reason, economics can be
thought to be in concurrence with the concept of human rights as every individual has the
right to betterment of lifestyle and that is essentially why we are humans. The constitution
provides for separate institutions such as the Finance Commission to review the policies of
the government and provide recommendations for the betterment of the general public. Along
with the responsibility of the state under Part XII (B) of the constitution to promote free trade
and commerce within the territory along with Articles 301 and 304 to enable the state to dive
into the world of trade and commerce as well. Under Articles 14 and 15, the state cannot
discriminate a person against social and economic activities in the jurisdiction and the
separate provisions of the Directive Principles of State Policy (DPSP) recommends to make
the state responsible for promoting the welfare (both social and economic), eliminate any
inequality in distribution of resources and exploitation of labours, opportunities in
employment and promote equality in wages for equal amount of work (often it is observed
that women get less pay for same amount of work as compared to men). All of these
provisions whether expressed or implied are essential for the individuals and the state
(particularly economy of the country) as well as they provide with better efficiency both in
smooth implementation of laws as well as overall welfare of an individual.

Thus, it can be said that law and economics have a lot in common and an even wider scope
than the scope of the subjects separately as it not only employs concepts from the two
subjects but also from allied social science subjects.

Conclusion:
It can be seen that economics in itself has a very dynamic history from initially being
considered only a study of household or state management to an ever-encompassing growth-
oriented modern definition. The Adam Smith’s definition provided for the concept of
economic man, Alfred Marshall’s definition evolved it from economic to real man by adding
the welfare factor to Smith’s, Robbins went ahead and added the rationality and wise choice
making concept to already introduced concept of real man and lastly, Samuelson went ahead
and provided for an evergreen definition of man with the thought of future as the putting
enough stress on the dynamic nature of resources and wants. All of these definitions cannot
hold strong if a proper legal framework is not provided for support and this framework must
also promote the objectives of overall welfare of individuals as well as the state. So, it is safe
to say that economics and law as a subject deserves to have a separate definition and be
studied as a separate branch of economics literature as well.
 References:

1. Gopalakrishnan, K. (2005). Economics for Law students. Lucknow: Eastern Book

Company.
2. Pal, D. Top 4 Definitions of Economics (With Conclusion). Retrieved 22 January
2021, from <https://www.economicsdiscussion.net/economics-2/definitions/top-4-
definitions-of-economics-with-conclusion/14134>.
3. What is Economics - Definitions, Criticisms. Modern Economic Theory. Corporate
Finance Institute. Retrieved 25 January 2021, from
<https://corporatefinanceinstitute.com/resources/knowledge/economics/what-is-
economics/>.
4. Calvo, P. and Waugh, G., 1980. Microeconomics. Sydney: McGraw-Hill.
 SACE-II

Answer:
Demand:
Demand can be termed as a desire to buy a commodity or service or product. But in order to
buy a commodity or service one needs purchasing power without which even if we desire, we
cannot buy a commodity. Along with purchasing power, the willingness of the individual to
spend on that particular commodity is required as if one does no longer want a commodity
the basis of the purchase will cease to exist. For example, if a person A wants to buy a car say
BMW Z4, here three conditions arise,

(1) when he does not have the capacity to spend the amount of money required to buy
the car but he is willing to do so, he will ultimately not be able to buy it due to lack
of purchasing power;
(2) when he has the capacity to spend the amount of money required to buy the car but
he is not willing to do so as he now prefers another car over BMW Z4, he will again
ultimately not buy the car as he is not interested in it;

(3) when he has the capacity to spend the amount of money required to buy the car and
is willing to do so, he will buy the car.

From the above example, it is clear that desire alone cannot give rise to demand. Thus,
demand for a commodity or service is the desire to buy the same when merged with the
capacity to buy or simply purchasing power and willingness to pay for the same.8

Thus an equation which can be formulated from the same which is,

8
Gopalakrishnan, K. (2005). Economics for Law students. Lucknow: Eastern Book Company.
Demand (D) = Desire to buy + purchasing power + willingness to pay for the commodity.

Since demand is a real-life concept, it is dependent on certain circumstances which can be

said as the factors influencing demand, these briefed as follows:

1. Price of commodity or service;

2. Income level of the consumers;

3. Distribution of Income;

4. Preferences of the consumer;

5. Advertisement and credit terms;

6. Size and Composition of Population;

7. Government policies (specially taxation);

8. Geographical Location of the area;

9. Weather and climate of the area;

10. State and nature of economy of the place;

11. Consumer’s expectation with regard to possibility of future price change.

Law of Demand:
The law of demand states that “other factors being constant (cetris peribus), price and
quantity demand of any good and service are inversely related to each other. When the price
of a product increases, the demand for the same product will fall and vice-versa.”9

Alfred Marshall defined law of demand as “Other things being equal, the demand is higher
with the fall in price and diminishes with the rise in price.”

Law of demand attempts to explain the consumer choice behaviour when the price of a
commodity changes. In the practical world, assuming all other determinants affecting demand
of a commodity remain constant, when the price of a commodity rises, it translates to a fall in
the demand of that commodity. Whereas, when the price of a commodity plummets, it
translates to a rise in the demand of that commodity. This is the instinctive consumer choice
behaviour. This happens because a consumer hesitates to spend more for the commodity due
to the fear of spending out all the money he has in requirements.

9
Gopalakrishnan, K. (2005). Economics for Law students. Lucknow: Eastern Book Company.
In simpler words, the price of a commodity is inversely proportional to its demand.

1
Price(P)∝
Demand (D)

Figure 1: This graph shows the demand curve which is upward sloping. Clearly when the price of the
commodity increases from price p1 to p2, then its quantity demand comes down from Q2 to Q1 and vice versa.

The assumptions critical to understand the law of demand are as following:

 The consumer income must remain unchanged: Change in income of the consumer
will lead the consumer to buy other products. If the consumer currently has a Xiomi
smartphone and he starts earning more, it is evident that he will upgrade to some other
brand say Apple or Samsung.
 The consumers must preferences must not change: For example, if a consumer who
previously wanted to buy a tourer bike now wants to buy a sports bike, it will
definitely affect the demand for the same.

 There must be no change in fashion trends: If the commodity becomes outdated less
people are likely to buy the same.

 No change in prices of related goods: If the prices of related goods change, it will
ultimately end up affecting the demand of the good in consideration.

 There must be no expectation of future price change: For example, if through trends it
can be observed that the rates of gold will increase, even if it is at 50,000 per 10 gram,
people will buy it with the expectation to sell when the prices go up.
Demand Schedule and Demand Curve:
Samuelson on demand schedule states that “The table relating to price and quantity of the
commodity demanded is called the demand schedule.”

Demand Schedule

Price (Rs. per kg.) Quantity demanded (in kg.)

50 50

100 30

150 20

200 15

250 10

The above demand schedule shows inverse relationship between price and quantity
demanded for a commodity.

Initially, when a price of a good is Rs.50 per kg, quantity demanded by the consumer is 50
kg. As the price increases from Rs.50 per kg to Rs.100 per kg and then to Rs.150 per kg,
quantity demanded by the consumer decreases from 50 kg to 30 kg and then to 20 kg
respectively. A further rice in price from Rs.150 per kg to Rs.200 per kg and then to Rs.250
per kg, translates in decrease in quantity demanded by the consumer from 20 kg to 15 kg and
then to 10 kg, respectively.

Thus, from the above schedule we can conclude that there is opposite inverse relationship in
between price and quantity demanded for a commodity, thereby substantiating the formula
given above.

Demand Curve on the other hand is the graphical representation of the tabulated demand
schedule.
In the figure above, price and quantity demanded are measured along the y-axis and x-axis
respectively. By plotting various combinations of price and quantity demanded, we get a
demand curve.

This downward slope of the demand curve also substantiates the formula by showing inverse
relationship between price and quantity demanded.

Exceptions of the Law of Demand:

As mentioned in the definition of law of demand “other factors being constant”, if this is
violated, the law of demand will not hold good and does not apply to such commodities and
circumstances. An example of such case is when even with the decrease in prices, the
demand plummets and even with increase in the prices of the commodity, its demand booms.
In such cases, the slope of the graph is positive and upward.

These exceptions are as follows:

1. Giffen goods: Giffen commodities are the substandard commodities, the demand of

which rises as prices go up. Many substandard goods are much inexpensive than the
favourable alternatives which are mostly utilized as a necessary good by low income
households. Whenever rise in the value of the Giffen goods it is expected in that the
low-income people reduce the intake of superior alternatives and purchase additional
amounts of Giffen goods to satisfy their daily needs due to the increasing price of
these goods and while income staying the same. Generally, this happens with the
staple food of an area. For example, if the prices of rice increase in India, people will
bring in more rise while cutting on the cost of procuring meat or pulses.
2. Veblen goods: It was postulated by Thorstein Veblen as the concept of “Conspicuous
Consumption.” According to which, there are a few sections of society who calculate
 the worth of the item solely by its cost, which means that pricier products and services
seem to be more useful than lower cost products. For example, goods like basmati rice
are deemed to be superior to other qualities and types of rice.

3. Potential price change in Future: Although the customer predicts that the value of the
product is likely to rise further in the future, he would purchase more of that in
anticipation of its elevated price, in order to be able to profit from the discomfort of
even higher value in the coming years. In another hand, if the customer predicts the
price of the product to decline farther in the future, he is likely to delay his transaction
considering the lower value of the investment in to be able to profit from even lower
costs in the future. For example, the volatile prices of gold.

4. Ignorance: Sometimes people are mistaken that high-priced products are of superior
quality than lesser priced products and rest on this, their buying choice. They buy
goods whose costs are comparatively higher than alternatives. For example, cloths
from branded stores.

5. Emergencies: In case of an emergency like war or pandemic, people tend to stock

goods necessary for the consumption due to the fear of shortage in supplies of such
items. For example, sanitisers in the start of the COVID-19 pandemic.

6. Change in fashion trends and personal preferences: Since it is a dynamic concept, they
are bound to change and consumers tend to buy goods which are in fashion even if
they are at higher rates. For example, a person in recent times tend to prefer a
smartphone over a feature phone.

7. Obvious Necessities of present day: There are some products which are now basic
elements of daily life. These are all the products where the customer consumes,
independent of the rate hike. For an example, for an iPhone user, a new iPhone even
though costlier will be necessity once his phone starts deteriorating.

8. Bandwagon effect: This is perhaps the most frequent form of variance to the rule of
demand under which the customer is attempting to buy the items purchased by his
associates, family or acquaintances. Here, the individual attempts to imitate the
purchasing behaviour and habits of the party to which he relates, regardless of the cost
of the product. For example, if in a group of five people, four have a Royal Enfield
 bike while one has a TVS bike then the one with TVS will also have a demand of
procuring for himself a Royal Enfield bike.

Elasticity:
“Elastic is a term used in economics to describe a change in the behavior of buyers and
sellers in response to a change in price for a good or service. In other words, demand
elasticity or inelasticity for a product or good is determined by how much demand for the
product changes as the price increases or decreases.”10 Simply, ElThe price elasticity of
demand (PED) is a measure that captures the responsiveness of a good’s quantity demanded
to a change in its price. More specifically, it is the percentage change in quantity demanded in
response to a one percent change in price when all other determinants of demand are held
constant. In short if, demand is the direction of need, then elasticity is the magnitude of the
need.

% change∈quantity demanded .
Price elasticity of Demand ( PED )=
% change∈ price of thecommodity .

Thus, as from law of demand, elasticity also translates to the inverse relationship between
quantity demanded and the price of commodity.
According to Marshall, “The elasticity (or responsiveness) of demand in a market is great or
small according as the amount demanded increases much or little for a given fall in price, and
diminishes much or little for a given rise in price”
There are three types of elasticity:
1. Price Elasticity: Price Elasticity is the change in demand of a product due to change
in pricing of the product.
2. Income Elasticity: Income elasticity is the change in demand in response to a
variation in in the income of the consumer.
3. Cross Elasticity: Cross elasticity translates to the change in the demand for a
commodity owing to change in the price of another commodity.
Price Elasticity of Demand (PED) varies from 0 to infinite. In this range, elasticity can be
divided into five types:
1. Perfectly Elastic Demand: where PED= ∞.
“When a small change in price of a product causes a major change in its demand, it is
said to be perfectly elastic demand. In perfectly elastic demand, a small rise in price
results in fall in demand to zero, while a small fall in price causes increase in demand
to infinity.”
Here the demand curve is horizontal.

10
Keaton, W. and Brock, T., 2021. What Does Elasticity Mean?. [online] Investopedia. Available at:
<https://www.investopedia.com/terms/e/elastic.asp> [Accessed 6 February 2021].
Figure 2“it can be interpreted that at price OP, demand is infinite; however, a slight rise in price would result in
fall in demand to zero.”

2. Perfectly Inelastic Demand: where PED= 0.

“A perfectly inelastic demand is one when there is no change produced in the demand
of a product with change in its price.” It is fairly a theoretical concept and not
applicable to practical life or real world. Though in cases of necessary products, it
maybe the case.

Figure 3Perfectly inelastic demand is graphed as a vertical line. The PED value is the same at every point of the
demand curve.

3. Unit Elastic Demand: where PED= 1.

4. Relatively Elastic Demand: where PED>1.
5. Relatively Inelastic demand: where PED<1.

Law of Diminishing Marginal Utility:

Alfred Marshall in his book “Principles of Economics” states that “The additional benefit
which a person derives from an increase his stock (consumption) of a commodity diminishes
with every increase in the stock that he already has.” Samuelson simplified it further and
stated, “As amount of particular consumed goods increases, the marginal utility tends to
decrease.”
Assumptions involved in this law are:
 1. That utility can be measured in cardinal numbers or whole numbers.
2. Income of the consumer is constant.
3. The consumer continues the commodity’s consumption.
4. Change in fashion trend, taste, etc. doesn’t take place.
5. Consumer is rational by nature.
6. All the units consumed are similar in all dimensions.
7. Price of alternative commodity remains same.
Quantity Total Utility Marginal Utility Description
(utils)
0 0 0
1 20 20-0=20 Positive Marginal Utility
2 38 38-20=18
3 53 53-38=15
4 63 63-53=10
5 70 70-63=7
6 75 75-70=5
7 75 75-75=0 Zero Marginal Utility
8 73 73-75=-2 Negative Marginal Utility
In the given schedule, we assume the cardinal measurement of utility where, the utility is
expressed in numbers.
First column deals with unit of commodity consumed, second deals with hypothetical
measurement of total utility, third deals with hypothetical measurement of marginal utility.
With the consumption of 1st commodity, total utility derived from consumption is 20, while
marginal utility is 20 too. With 2nd consumption, the total utility derived increases to 38 but
marginal decreases to 18 as it has the formula TU(n)-TU(n-1). By the 5 th consumption it,
reaches its full potential. After it, total utility remains constant at the saturation point of the
consumer, marginal utility at saturation will always be 0. If we go beyond saturation,
marginal utility falls negative and total utility decreases.
Example:
An individual can purchase a chocolate for Rs. 100, he is quite hungry and decides to buy
five more chocolate. After doing so, the individual consumes the first chocolate and gains a
certain positive utility from eating it. Because the individual was hungry and this is the first
chocolate he consumed, the first chocolate had the highest benefit. Upon consuming the
second chocolate, the individual’s appetite is becoming satisfied. He wasn't as hungry as
before, so the second chocolate had a lesser benefit and enjoyment than the first. The third, as
before, holds even less utility as the individual is now not fully hungry anymore.
In fact, the fourth chocolate has experienced a diminished marginal utility as well, as it is
difficult to be consumed because the individual experiences discomfort upon being full from
food. Finally, the fifth chocolate cannot even be consumed. The individual is so full from the
first four pieces that consuming the last piece of chocolate results in negative utility. The five
chocolate demonstrate the decreasing utility that is experienced upon the consumption of any
good.

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