Chapter No.

05
Utility Analysis
‌‫تجزيه‌و‌تحليل سودمندي‬
Chapter No.05 Outlines:

 Utility and its Various

Concepts.
 Law of Diminishing
Marginal Utility.
 Schedule and diagram
of Law of DMU
Utility and its Different
Aspects:
 Utility
It is the satisfaction which is derived from
consumption of some goods or services.
OR
The ability of a commodity to satisfy a
human want is called utility.
For Example: Pen has the ability to write
etc.
Cont…

 Marginal Utility (MU):

It is the amount of utility which we get from
the consumption of one additional unit.
In short MU means an additional or
incremental utility.

 Total Utility (TU):

The total amount of utility obtained from
consumption of all units of goods or services.
Continued......

 Satiety Point OR Saturation Point:

When the marginal utility (MU) is zero and total
utility (TU) is maximum. This is known as
saturation point or point of satiety.

 Negative Utility:
The utility that gives negative satisfaction known
as negative utility.
This happens when you consume beyond the point
of satiety.
 Law of Diminishing Marginal Utility
(LDMU) OR Marshallian Utility Approach:

 The Law of Diminishing Marginal Utility

(LDMU) was stated and developed by Marshall
and his followers.
 It is the first and simplest attempt to analyze
consumer behavior.

 The law suggests that the utility that a person

gains from several units of the same good goes
on falling.
Statement of the Law of DMU:

“If other things do not change and a

consumer increases the use of a
commodity, the utility of the every new
unit of the commodity will be less than
the utility of the previous unit.”
Assumptions of the Law of DMU.
The law of diminishing marginal utility is
true under Certain Assumptions.

These Assumptions are given as under.

 Rationality
 Continuous Consumption of the Product.
 No Change in Consumer Income
 Homogeneous units of the Product.
 Suitable Units of the Product.
 Normal person.
Schedule for Law of DMU.

Units of TU of Apple MU of apple

apple
1 10 10
2 18 8
3 24 6
4 28 4
5 30 2
6 30 0
7 28 -2
 Graphical presentation of the
Law of DMU
Y
c
EXPLANATION: 30
26
22 TU
Here in the graph X-axes shows
18
the units of a good whereas the
14
MU and TU is taken on Y-axes. 10
As much as consumer consumes 06
04
more n more units of a good the
MU decreases while TU is
increasing which are shown MU 0
1 2 3 4 5 6 7
and TU curve. X
In the given graph “c” is the -4 MU
point of satiety where TU is
maximum and MU is zero.
CH # 05 END
Thank You
For
Your Attention.