Answer to Question #261096 in Economics for Madhu

Question

1. Distinguish between the total utility and the marginal utility.

2. Explain the law of diminishing utility

3. What is meant by the consumer’s

equilibrium? What is the condition of the

consumer’s equilibrium under cardinal utility approach?

Answer 1

Total utility (TU) is the total utility received from the consumption of all units of the good. The total utility increases with the increase in consumption, but not in proportion to the volume of consumption, and gradually dies out until it reaches zero.

Marginal utility (MU) is the additional utility that a consumer gets from an additional unit of a particular product.

Gossen's first law, better known as the law of diminishing marginal utility, states that each subsequent (marginal) portion of a good is less and less useful from the point of view of an individual, and as a result, the total utility of all good for him decreases.

Thus, if there is a lot of good, then it is valued very cheaply, namely, according to the usefulness of the last (marginal) portion of this good available to the consumer. In our example, this is the utility for the consumer of the last glass of water, which will determine his assessment of the usefulness of freshwater. Starting from his first law, Gossen formulated his second law, the essence of which is that "the total amount of consumed goods is established such that the marginal utilities of each good are equal."

The cardinalist, or quantitative, theory of consumer behavior in solving a given problem presupposes the possibility of theoretical measurability of the usefulness of the good. In other words, it is assumed that it is possible to determine the exact amount of utility obtained by consuming the good. The quantitative measurability of utility makes it possible both for comparing various benefits in terms of their utility and for determining the difference between them. Proponents of the theory (K. Menger, L. Walras) believed that utility is measured in arbitrary units - utils (from the English utility - utility). The quantitative measurability of utility allows the consumer to measure the utility of an additional unit of good (marginal utility) and estimate the value of the total utility of a given set of goods. In the cardinalist theory of consumer behavior, utility is a subjective value, since it reflects the subjective attitude of a particular person to a particular good.