What is the cardinal utility analysis? Critical Examine a law of diminishing Marginal Utility.
Meaning of Cardinal utility
Meaning of cardinal utility :- Cardinal utility refers to cardinal numbers like 1, 2, 3, 4 etc. Cardinal utility are those numbers which can be added or subtracted.
In other words:- When we consume anything its utility measures in numbers like counting as 1,2,3,4,5, etc. Which can be increased and decreased in total utility. Law of marginal utility
Definition of utility:- Want Satisfying power of a good is called utility. It denotes a quality in a commodity or service by virtue of which our wants are satisfied.
According to Hibbdon, “Utility is the quality of a good that satisfies a want”.
Meaning of Marginal Utility
Meaning of Marginal Utility:- The change that takes place in the total utility by the consumption of an additional unit of a commodity is called marginal utility.
For Example:- By consumption of the first cup of tea you get 15 units of utility and by the consumption of the second cup of tea your total utility goes up to 25 units. It means, the consumption of a second cup of tea has added 10 units = 25-15 of utility to the total utility. So here the difference of 10 units of utility of consumption is called marginal utility. Law of marginal utility
Definition of Marginal Utility:- “Marginal utility is the addition made to the total utility in consumption by consuming one more unit of commodity and that difference lies in the previous and successive unit of a consumption.” is called marginal utility. Law of marginal utility
Marginal utility can be measured with the help of the following equation.
MUnth= TUn – TUn–1
Law of diminishing marginal Utility
Meaning of law of diminishing marginal Utility:- When you Consume the same thing again and again at any given time, then the number of such goods with you goes on increasing. The marginal utility from each successive thing will go on decreasing. It is the reality of our life. Which is described in economics as the law of Diminishing Marginal Utility.
Definition of law of Diminishing marginal utility :- “As the amount of any thing that a person consume increases more and more, the satisfaction of that successive object will decrease due to the consumption increases of a commodity, so it decreases the satisfaction of the consumer”. Law of marginal utility
In other words:- When a consumer consumes more and more units of a commodity, in a given time, the Utility derived from each successive unit goes on diminishing.
So consumers will buy a product at that point where the marginal utility of the commodity is equal to price paid for it. Law of marginal utility
Price = Marginal Utility
Law of diminishing marginal utility can be understood by considering the following table.
Law of Diminishing Marginal Utility
|
No. of Cup of tea |
Total Utility |
Marginal Utility |
|---|---|---|
|
Zero First Second Third Fourth Fifth Sixth |
0 4 7 9 10 10 9 |
0 4 3 2 1 0 –1 |
Table Shows that
- The First cup of tea yields 4 units of marginal utility. This will satisfy your want to some extent.
- The second cup of Tea yields still less marginal utility than the first one as is 3 units.
- Third cup of tea yields still less marginal utility as 2 units, and
- Fourth cup of tea is just 1 unit of marginal utility. At this point, want may be fully satisfied.
- Thus, the Fifth cup of tea yields zero marginal utility.
- If you take the sixth cup of tea it may upset your system. In other words you may get negative utility say, –1 unit.
It is evident from the Above Table that as more and more units of cup of tea are consumed, Thus Marginal utility from each Successive unit goes on diminishing.
From the above Figure we can understand units of Quantity are shown on the ox-axis and Marginal Utility on the oy-axis. This slopes downward from left to Right.
- As we see, the first cup of Tea yields Four utilities.
- Second cup of tea yields three units.
- Third cup yields two utilities.
- Fourth cup of tea yields one of marginal Utility.
- Fifth cup of tea yields zero marginal Utility. At this point, AB Curve touches the x-axis at point ‘C’ that shows the fifth cup of tea.
- Sixth cup of tea yields negative marginal utility. So, the AB curve goes below the x-axis.
Conclusion – From the above discussion we understand that cardinal utility is measured in numbers as like 1,2,3,4.. So on. We are also able to understand the concept of marginal utility of consumption. Marginal utility rule is implemented in the normal life of human beings. Law of marginal utility you can download the syllabus Business Economics on the official website of Gndu.
Conclusion of Marginal Utility
The concept of marginal utility explains how consumer satisfaction changes with each additional unit of a good or service consumed. It follows the Law of Diminishing Marginal Utility, which states that as consumption increases, the additional satisfaction (marginal utility) derived from each extra unit gradually decreases. Law of marginal utility