Question

Explain one of your consumption experience that illustrates the concepts of total utility and marginal utility. In addition, discuss the mechanism of the law of diminishing marginal utility in this experience and the impact of the related assumptions used in our course?

Answer 1

Total utility refers to total satisfaction derived from the consumption of giving units of a commodity. where as marginal utility is defined as the additional satisfaction derived from consuming an additional unit of a commodity.

When a consumer consumes more and more units of a commodity, additional satisfaction derived from consuming an additional unit of a commodity goes on declining. That is marginal utility starts falling with an additional unit of consumption then becomes 0 and then finally goes negative.

Given below is the schedule showing total utility and marginal utility derived from Consuming chapati:

Quantity	total utility	marginal utility
0	0	-
1	8	8
2	14	6
3	18	4
4	20	2
5	20	0
6	18	-2

Psychologically, intensity of desire for a commodity tends to decrease as more and more standard units of a commodity are consumed at a point of time. This law is called law of diminishing marginal utility.

law of diminishing marginal utility states that as more and more units of a commodity are continuously consumed, marginal utility derived from every additional unit must decline. Indeed it is very natural to happen in respect of all goods and services. It is therefore called fundamental law of satisfaction.

Assumptions of law of diminishing marginal utility

1. Only standard units of commodity are consumed

2. Consumption of the commoditye is continuous. not that one unit of the commoditye is consumed now and the other tomorrow.

3. Price and income of the consumer remains constant

4. Marginal utility of money for a consumer does not change.