Vedantu’s revision notes for Class 12 Microeconomics Chapter 2 provide a clear and concise summary of the Theory of Consumer Behaviour. 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.
In the above table, there are three forms of marginal utility (MU) as positive, zero, and negative marginal utility. Up to 5 units of consumption, marginal utility (MU) is decreasing and remains positive. Until the marginal utility (MU) is positive, total utility (TU) surges/rises at a declining rate.
Consumer Budget
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. Utility refers to the satisfaction or benefit a consumer gets from consuming a good or service. There are different types, like total utility (overall satisfaction) and marginal utility (satisfaction from one additional unit). This happens because of the marginal rate of substitution that gets diminished. The indifference curve will neither touch nor will they intersect each other. Two points of the indifference curve do not give the same satisfaction level.
Solutions for 2: Utility Analysis
They help in understanding consumer preferences and how consumers choose between different combinations of goods. The indifference curve is a simple curve that shows the different combinations of two goods. Each of the combinations will offer the sale satisfaction level to the consumer. Movement along a demand curve occurs when changes in quantity sought are connected with variations in commodity price. According to the IC analysis, a buyer maximises his utility by selecting a package of two commodities that when mu is falling tu is is also within his budget.
- Furthermore, whether a good is normal or inferior may differ from one individual to the next.
- In other words, it’s the study of scarcity, the study of how people utilise resources and respond to incentives or the study of decision making.
- Discuss the relationship between total utility and marginal utility, using a hypothetical schedule.
- MU curve shows zero and negative level of satisfaction whereas, TU curve shows maximum level of satisfaction.
The above given schedule indicates MU derived from each successive unit & TU – summation of MU’s. MU & TU are inter-related concepts but there is a difference between MU and TU because MU shows utility derived from each unit whereas, TU indicates summations of marginal utilities. It’s a social science that studies how commodities and services are produced, distributed, consumed, and traded. The decisions made by private citizens, corporations, governments and nations are observed when allocating resources. In other words, it’s the study of scarcity, the study of how people utilise resources and respond to incentives or the study of decision making.
- It asserts that when the price of an item decreases, the amount required rises, and when the price of a commodity rises, the quantity demanded declines.
- There is a direct relationship between total utility and marginal utility.
- According to them, utility is a psychological experience that cannot be quantified in absolute terms.
- The given example explains that, Lalita’s want of writing an essay can be satisfied with the help of pen and note-book.
- Total utility is the sum of all utilities derived by a consumer from all units of commodity consumed by him.
Balbharati solutions for Economics English 12 Standard HSC chapter 2 – Utility Analysis
The change happens because of the change in the consumer’s income and a change in the goods’ prices. When there is a rise in consumer income, it shifts the budget line towards the right. When there is a drop in the consumer’s income, it shifts the budget line to the left.
Utility Analysis Question Answer Class 12 Economics Chapter 2 Maharashtra Board
However, as long as MU remains positive, the Total Utility (TU) will increase. As long as MU, derived from the consumption of additional units of the commodity, is positive, TU continues to rise. If any unit of commodity consumed beyond the point of satiety, consumer experiences dissatisfaction. MU curve shows zero and negative level of satisfaction whereas, TU curve shows maximum level of satisfaction. Indifference curves represent different combinations of goods that give a consumer the same level of satisfaction.
This is where one bundle has more than the other of one good and not less of the other good in between two bundles. Elasticity of demand is measured at any location by dividing the length of the lower segment of the demand curve by the length of the upper segment of the demand curve at that point. At the midpoint of any linear demand curve, the value of ed is unity.
The marginal utility can be defined as an extra utility drawn from an extra unit of a commodity. Hence, it is the change in total utility while consuming one more unit of commodity. In other words, it is the ratio of change in total utility with the change in units of a commodity (normally one unit). In the law of diminishing marginal utility, Alfred Marshall assumes that the marginal utility of money ______. In the given diagram X’ axis indicates units of commodity and ‘Y’ axis measures TU & MU. 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.
According to classical economics, utility can be measured similarly to how one would measure one’s height or weight. According to economists, the utility can be quantified in cardinal terms. It is possible to quantify the utility that an individual obtains through the consumption of commodities and services. However, there was no standardised method of calculating utility; so the economists came up with a hypothetical unit of measurement called Util.
After the 6th unit consumption of goods, MU is negative (-2) and due to negative MU, total utility declines to 28 utils from 30 utils. Thus, the consumer gets maximum satisfaction when MU is zero and that point is known as the point of saturation. As more and more units of the commodity are consumed, the marginal utility derived from the consumption of each additional unit of the commodity tends to fall. With the consumption of the successive units, the marginal utility becomes zero and, consequently, becomes negative. According to the law of diminishing marginal utility, as a consumer consumes more units of a commodity, the marginal benefit received from each succeeding unit declines.
This will clear students’ doubts about questions and improve their application skills while preparing for board exams. When the consumer consumes 2nd unit of goods, TU increases to 18 utils from 10 utils and MU decreases to 8 utils. Accordingly, when the consumer consumes the 6th unit of goods, MU decreases to zero where TU becomes maximum (30 utils).
According to them, utility is a psychological experience that cannot be quantified in absolute terms. They believe that consumers can order different combinations of goods and services to their preferences. Utils are imaginary and psychological units that are used to measure satisfaction obtained from the consumption of a certain quantity of a commodity. 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.
If there is a change in the price of one of the goods, this causes the budget line to rotate. The fall in the price causes outward radiation, which happens because there is a rise in the purchasing power of money. A linear demand curve’s elasticity may be simply assessed graphically. The elasticity of demand at each point on a straight line demand curve is determined by the ratio between the demand curve’s lower and upper segments at that position. Changes in the quantity demanded are indicated by movement along the demand curve.