Monthly Archives: September 2015

Relation betweem marginal utility and price

The price that a consumer is willing to pay for a commodity depends on the MU he expects to derive from it. Therefore, for initial units he will be willing to pay more and for the later units he will

Posted in General Economics

Money and the law of diminishing marginal utility

It is generally said that money is an exception to the law of diminishing marginal utility. However such a conclusion emerges out of a misunderstanding about money and due to confusion between marginal  utility and total utility. Money does not

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Importance of the law of diminishing marginal utility

Practical importance. 1] Guides the consumer- ( household expenditure ) A rational consumer acts according to this law while arranging  his expenditure and tries to spend his income in a manner in which the consumption yields maximum satisfaction in his

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Critisms of the law of diminishing marginal utility

1] Cardinal measurement of utility not possible as it is subjective and introspective  therefore not quantifiable. 2] Comparison of marginal utility derived from every unit consumed not possible 3] Conditional The law is based on too many condition or assumption

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Exceptions to the law of diinishng marginal utility

The law is based on unrealistic assumptions or conditions. In reality it is very difficult to meet the conditions of homogeneity, continuity and rationality etc simultaneously. Sometimes, it appears that the law is experienced but on closer analysis it is

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Assumptions of the law of diminishing marginal utility

1] Utility of a commodity lies in the capacity of a commodity to satisfy a human wants 2] The consumer begins consumption of a particular commodity ie real consumption. (actual consumption ) eg water. 3] The commodity has only one

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Relation between total utility and marginal utility

1] TU of a good or service refers to the total satisfaction derived by the consumer from the consumption of it. Marginal utility refers to the addition to the total utility by the consumption of every additional unit of the

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CONCEPTS OF UTILITY

Marginal utility Marginal utility refers to the addition of satisfaction to the total utility by the consumption of every additional unit of the commodity OR Marginal utility refers to the satisfaction from the last unit of consumption at a point

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TYPES OF UTILITY

Production refers to  “the creation of utility having value-in-exchange” The process of production may create six types of utilities. 1] Form utility – Form utility is the most obvious utility added in the process of production. It refers to a

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ASPECT’S OF UTILITY

Dr Alfred Marshall has explained utility analysis of demand in his book   “PRINCIPLES OF ECONOMICS” published in 1890. His study of demand is based on the marginal utility analysis. The demand for a commodity depends on the utility of that

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