Cardinal Utility Analysis — Part 1: Utility and the Law of Diminishing Marginal Utility: visual lesson, ISC Class 12 Economics

Lesson

Consumer Behaviour: Cardinal Utility Analysis

Part 1 — utility, total and marginal utility, and the Law of Diminishing Marginal Utility.

In this lesson you will

Explain utility, total utility and marginal utility, and calculate MU from TU
Explain the relationship between TU and MU with diagrams
State the Law of Diminishing Marginal Utility with its assumptions, schedule and diagram

Part 1 at a glance

Concept

Utility is the capacity of a good to satisfy a want. In the cardinal approach it is counted in imaginary units called utils.

Subjective: the same good gives different utility to different people.
Not the same as usefulness: a cigarette has utility for a smoker though it harms health.
Varies with time and place: a woollen shawl has more utility in a Shimla winter than in a Chennai summer.

Table of features of utility with imagined examples: subjective, ethically neutral, and dependent on time and place
Feature	Example (imagined)
Subjective	Black coffee pleases a night-shift nurse, not her daughter
Ethically neutral	A good need not be useful to have utility
Depends on time and place	A shawl in Shimla in January vs Chennai in May

Concept

Total utility (TU): satisfaction from all units consumed. Marginal utility (MU): the addition to TU from one more unit.

MUₙ = TUₙ − TUₙ₋₁, and TU = sum of the MUs.

Imagined Jaipur winter fair. MU = TUₙ − TUₙ₋₁.
Plates	1	2	3	4	5	6	7
TU (utils)	20	36	48	56	60	60	56
MU (utils)	20	16	12	8	4	0	-4