4.Ordinal Measurement of Utility According to this utility cannot be measured in numerical units, a consumer can (at best) rank his preferences in the sets of most preferred to least preferred sets. The correct answer is When the total utility is maximum, marginal utility is zero. As long as MU, derived from the consumption of additional units of the commodity, is positive, TU continues to rise. Understanding price elasticity of demand (Ed) is crucial as it summarises consumer responsiveness.
This inverse relationship between the price a consumer is willing to pay and the quantity they consume is the essence of the Law of Demand. In the above example, let us assume that 1 util is equal to ₹1. Now, the utility derived from the consumption of cake will be ₹15, which is known as the value of utility in terms of money. The major advantage of using the monetary value of utility instead of utils is that monetary value allows easy comparison between the price paid for the commodity and the utility derived from it. As utils vary from individual to individual, it cannot be taken as a standard unit for measurement. Therefore, various economists suggested that utility should be measured in monetary terms.
FAQs on Theory of Consumer Behaviour Class 12 Economics Chapter 2 CBSE Notes – 2025-26
Marginal Utility (MU) derived from consumption of various units of a commodity and its Total Utility (TU) are interrelated. By understanding the relationship between total utility and marginal utility, we can gain insights into consumer behavior and make informed economic decisions. Marginal Utility (MU) refers to additional utility on account of the consumption of an additional unit of a commodity. 6.Marginal Utility (MU) It refers to additional utility on account of the consumption of an additional unit of a commodity. 5.Total Utility (TU) It is the sum total of Marginal Utilities derived from the consumption of all the units of a commodity.
- (Q3) Unless MUM is assumed to be constant, equilibrium of the consumer cannot be specified.
- MU is the change in TU caused by the consumption of one extra unit.
- This phenomenon is known as the Law of Diminishing Marginal Utility.
- It is the fundamental Law of Utility approach to consumer’s equilibrium.
Access Microeconomics Chapter 2 Theory of Consumer Behaviour Class 12 Notes
Thus, the law of DMU explains that, the more of a thing you have, the less you want to have more of it.In short, as consumption of identical units of commodity increases, MU diminishes. Total Utility determines the overall satisfaction obtained after consuming every single unit of that commodity. It is the total utility derived from the consumption of all units of a commodity. In the law of diminishing marginal utility, Alfred Marshall assumes that the marginal utility of money ______.
Importance of Reason Based & Extra Questions – Utility Analysis
Marginal Utility (MU) is the additional satisfaction or pleasure derived from consuming one more unit of a good or service. It is the change in total utility resulting from a one-unit increase in consumption. Total Utility refers to the aggregate utility or summation of utility derived from the consumption of all the units of a commodity. The Law of Diminishing Marginal Utility when mu is falling tu is provides the reason behind the Law of Demand. As a consumer buys more of a good, its marginal utility decreases. Therefore, the consumer will only be willing to buy an additional unit if the price falls.
Mark Questions
They believe that consumers can order different combinations of goods and services to their preferences. People consume different goods and services to maximise their level of satisfaction. To achieve this, it is required to ascertain the level of satisfaction attained from a certain commodity. The Cardinal Utility Approach employs the concept of “Utility” to determine the level of satisfaction.
There are no exceptions to the law of diminishing marginal utility. As per the law of diminishing marginal utility, the measurement of utility is assumed to be _____. (Q11) Mr. A consumes two commodities X and Y whose prices are Rs. 6 and Rs. 8 per unit respectively. Does Mr. A attains his equilibrium when he is getting marginal utility of X equal to 7 and that of Y also equal to 7?
- (Q5) If MU of rupees increases, the quantity demanded of the commodity will also increase.
- (c) At a point of satiety, Total Utility is maximum.
- It is the change in total utility resulting from a one-unit increase in consumption.
- _________________ utility is the utility derived from the last unit of the commodity consumed.
- Note The above law is based upon certain assumptions.
- (b) As we consume more units of a commodity, total utility from its consumption keeps falling.
Economics Notes for Chapter 2 Theory of Consumer Behaviour Class 12 – FREE PDF Download
This is the point where the slope of both, the indifference curve and budget line are equal to each other. The budget line is a graphical representation of all the bundles that cost the same as the consumer’s income. The budget line depicts two different combinations of goods that a consumer can buy based on his or her income and commodity prices. The marginal rate of substitution is the slope of the indifference curve. It is because of the MRS diminishing, that the indifference curve is convex in nature.
Maharashtra State Board 12th Economics Important Questions Chapter 2 Utility Analysis
The consumer would continue decreasing the consumption of commodity X till the equality between the ratio of marginal utility to price in case of X and Y is again reached. Utility, in economic terms, is a measure of satisfaction or pleasure derived from consuming a good or service. Understanding the concepts of Total Utility (TU) and Marginal Utility (MU) is crucial to grasp consumer behavior and decision-making processes. This article includes topics that define total utility and characteristics of utility. Let us explore these topics for a clear understanding.
It uses concepts like the Law of Diminishing Marginal Utility. The Ordinal Utility approach, considered more realistic, argues that utility cannot be measured numerically but can be ranked in order of preference. It uses tools like indifference curves to explain consumer choices. Vedantu’s revision notes for Class 12 Microeconomics Chapter 2 provide a clear and concise summary of the Theory of Consumer Behaviour.
Shift in demand curve occurs when the price of a commodity remains unchanged however the quantity demanded changes due to other factors, allowing the curve to shift to one side. Movement in the demand curve occurs when a commodity experiences a change in both quantity demanded and price, leading the curve to move in a specific direction. 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. They must decide whether to spend money on Good 1 or Good 2. Any point within the area budget line is an attainable combination that a consumer can buy given his income and price of goods. Any point outside the area is a non-attainable combination, which the consumer cannot afford to buy.
Understanding marginal utility helps us understand why consumers make choices.For example, a consumer will typically continue to consume a good as long as the marginal utility is positive. Once the marginal utility becomes negative, the consumer will stop consuming the good.Marginal Utility is a fundamental concept in economics. It helps explain why consumers may choose to consume more or less of a particular good or service. As consumption increases, marginal utility typically diminishes, meaning that each additional unit provides less additional satisfaction.
When MU decreases, TU increases at a diminishing rate. (As shown in figure till consumption level OQ).2. When MU is zero, TU is constant and maximum at P.3.
Chapter 5 Consumer Equilibrium is an important topic in Class 12, please refer to answers provided below to help you score better in exams In relationship between Total Utility & Marginal Utility, MU (Marginal Utility) of a commodity becomes negative when TU (Total Utility) of a commodity is falling. How does utility differ from pleasure, usefulness, and satisfaction in economics?
They cover essential concepts such as utility, marginal utility, and consumer equilibrium, helping you understand how consumers make decisions. The notes simplify complex ideas and include practical examples to illustrate key points. By using these notes, you’ll be able to grasp the material more effectively and apply it to exam questions with confidence. Overall, Vedantu’s notes are a valuable resource for mastering this chapter and preparing thoroughly for your exams. What is one assumption of the law of diminishing marginal utility? Which is an exception to the law of diminishing marginal utility?