economics_ law of diminishing marginal utility.pdf

1/19/15 Economics: Law of Diminishing Marginal Utility

1/5economicsmicro.blogspot.in/2008/11/law-of -diminishing-marginal-utility .html

Law of Diminishing Marginal UtilityUtility refers to the amount of satisfaction a person gets from

consumption of a certain item.and marginal utility refers to the addition

made to total utility, we get after consuming one more unit.

An individual's wants are unlimited in number yet each individual's want is

satiable. Because of this, the more we have a commodity, the less we

want to have more of it.

This law state that as the amount consumed of a commodity increases,

the utility derived by the consumer from the additional units, i.e marginal

utility goes on decreasing.

The law of diminishing marginal utility explains the downward sloping

demand curve

Definition

According to Marshall, The additional benefit a person derives from a

given increase of his stock of a thing diminishes with every increase in

the stock that he already has

Assumptions:

All the units of a commodity must be same in all respects

The unit of the good must be standard

There should be no change in taste during the process of consumption

There must be continuity in consumption

There should be no change in the price of the substitute goods

Explanation:

As more and more quantity of a commodity is consumed, the intensity if

desire decreases and also the utility derived from the additional unit.

Suppose a person eats Bread. and 1st unit of bread gives him maximum

satisfaction. When he will ead 2nd bread his total satisfaction would

increase. But the utility added by 2nd bread(MU) is less then the 1st

bread. His Total utility and marginal utility can be put in the form of a

following schedule.

Topics 2008 (81)

November (81)

What is Economics?

Demand

Market Demand

Law of Demand

Supply

Law of Supply

Change in Demand and

Increase/Decrease in quantit...

Change in supply and

Increase/decrease in quant...

Equilibrium Price

Changes in Market Equilibrium

What is a Market?

Consumer Surplus

Consumer surplus and price

elasticity of demand

Types of goods

Economics : Art Or Science

Difference : Micro and Macro

Economics

Central Problems of an Economy

The Production Possibility Curve

Opportunity Cost

What is Elasticity?

Price elasticity

Factors affecting Elasticity

Income Elasticity

Cross Elasticity

Elasticity & Revenue

Consumer Behavior

Utility

Law of Diminishing Marginal Utility

Law of Equi-Marginal Utility

Indifference curve Analysis

The indifference curve

The shape of the indifference curve

and the margi...

An indifference map

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Economics



Plotting the above data on a graph gives

Here, from the MU curve we can see that MU is declinig as

consumer consumes more of the commodity.

When TU is maximum, MU is Zero.

After that, TU starts declining and MU becomes negative.

Exceptions:

Money

Hobbies and Rare Things

Liquor and Music

Things of Display

Importance:

A Budget Line (budget constraints)

A change in consumer income and

the budget line

A change in the price of a good and

the budget lin...

Equilibrium position : Indifference

analysis

Income and substitution effect

Theory of Production

Law of diminishing marginal product

Returns to scale

Cost function

Total Cost, Fixed Cost and Variable

Cost curves

Marginal Cost and Average Cost

curves

Long Run Cost

Opportunity Costs, Explicit Costs

and Implicit cos...

Derivation of long-run average cost

curve

Economies & Diseconomies of scale

Shifts in the Cost Curves

Isoquant Analysis

Slope of isoquant curve/Marginal

rate of substitut...

Isoquant map

The Isocost Line

Isoquant analysis :The Economically

Efficient Poin...

Producers surplus

What is a Market?

Perfect competition

Demand Curve & Equilibrium in

perfect competition...

Short run profit Maximisation in

perfect competiti...

Long run profit Maximisation

Short run vs Long Run

Monopoly

Monopolists Demand and MR Curve

Monopoly vs Perfect Competition

Equilibrium/Profit-Maximization :

Monopoly

Sources of Monopoly Power

Price Discrimination :monopoly

Oligopoly

The importance of price and non-

price competition

Kinked demand Curve

Game Theory :Introduction



Basis of Law of Demand

Basis of Consumption Expenditure

The basis of Progressive Taxation

Posted by Sar ika Gugnani at 12:31 PM

Reactions: Helpful (100) Not helpful (9)

19 comments:

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Anonymous said...

Very gud work here n very helpful. Thank you. :)

January 19, 2013 at 3:01 AM

Anonymous said...

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March 1, 2013 at 5:41 AM

Anonymous said...

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April 27, 2013 at 2:38 AM

Anonymous said...

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October 20, 2013 at 7:37 AM

Anonymous said...

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December 23, 2013 at 7:30 AM

Anonymous said...

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May 12, 2014 at 4:46 PM

Kamya Vishwanath said...

THIS IS SO HELPFUL. Thanks a ton. :D

Made my life so much easier.

May 31, 2014 at 8:48 AM

Anonymous said...

Thanks for the clear explanation.

But I disagree with the examples. Everything object under



demand is subject to this. Even money in a limiting case is

subject to this!

June 8, 2014 at 11:07 AM

Anonymous said...

great work keep it up man :) .

July 5, 2014 at 3:13 AM

Risha said...

great work keep it up man :) .

July 5, 2014 at 3:14 AM

jashan mundi said...

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wanted......(:(:

July 6, 2014 at 12:24 AM

Anonymous said...

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July 7, 2014 at 8:46 AM

Student said...

very useful,THANKS

July 24, 2014 at 11:47 AM

Anonymous said...

Very much useful

August 16, 2014 at 8:33 PM

Anonymous said...

Good explaination. It's very helpful.

Thankyou

September 8, 2014 at 7:10 AM

Anonymous said...

Why is money an exception?

September 19, 2014 at 8:54 AM

shankar kodumunja said...

very nice



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October 13, 2014 at 1:59 AM

Anonymous said...

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November 24, 2014 at 12:05 AM

Anonymous said...

Thank you for the INfo. it will be vey helpful

November 26, 2014 at 3:03 AM

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