They must decide whether to spend money on Good 1 or Good 2. Consumers are prepared to spend lesser monetary amounts for more of a product as its utility falls with increased consumption. When the former reaches the highest point Q, the latter touches the X-axis at point С where the MU is zero. The relation between total and marginal utility is explained with the help of Table 1. The effects of price changes on the amount desired of an item are described in the form of a law known as the law of demand. Any point within the area budget line is an attainable combination that a consumer can buy given his income and price of goods.

Although wealth and finance are frequently discussed in the book, it isn't all about money. From the late 1960s onward, Martin Fishbein and Icek Ajzen developed the Theory of Reasoned Action as one such theory. Consumption is founded on the purpose to generate or obtain an outcome, according to the theory's basic proposition.

The units of apples which the consumer chooses are in a descending order of their utilities. When the MU becomes zero or neutral, the total utility is at its maximum. Thus, stating that the consumer has reached the optimum when mu is falling tu is level of satisfaction. Though a utility cannot be measured in exact numbers, it is up to the consumer to represent his satisfaction level in terms of derived utils.

Types of Utility

For study material related to Microeconomics Class 12 Chapter 2 students can visit the vedantu app. In the diagram, TU is the total utility curve and MU is the marginal utility curve. As the consumer consumes the first unit of commodity, s/he obtains 10 utils of utility. In the above table, there are three forms of marginal utility (MU) as positive, zero, and negative marginal utility.

1. The relationship between TU and MU can be explained with the help of the following schedule and diagram.
2. When the MU becomes zero or neutral, the total utility is at its maximum.
3. When the consumer consumes 2nd unit of goods, TU increases to 18 utils from 10 utils and MU decreases to 8 utils.
4. According to economists, the utility can be quantified in cardinal terms.
5. Though a utility cannot be measured in exact numbers, it is up to the consumer to represent his satisfaction level in terms of derived utils.

It is the total utility derived from the consumption of all units of a commodity. 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. The MU curve is represented by the increment in total utility shown as the shaded block for each unit in the figure.

Chapter 4: Elasticity of Demand

It is possible that there can be a parallel shift in the budget line. 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. 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.

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).

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. So long as total utility is increasing, marginal utility is decreasing up to the 4th unit.

Market Demand:

This approach states that utility can not be expressed in cardinal numbers like 1,2,3, and 4, rather it can only be ranked as high or low. The concept of cardinal utility was discarded by modern economists. 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.

Law of Diminishing Marginal Utility:

Thus, the consumer gets maximum satisfaction when MU is zero and that point is known as the point of saturation. For the utility theory to work, it must be assumed that people are rational beings. In economics, rationality has a different connotation than it does in everyday speech. In economics, a person is "rational" if they make decisions that maximise utility.

MU is generally seen as diminishing with the consumption of each additional unit though at times it can be seen as increasing too. At the fourth sip, the MU becomes zero, which indicates that the person is not feeling thirsty anymore. Where TUx is the total utility of commodity x;ΣMUx is the sum of all the marginal utilities of commodity x.