Every kind of Product (commodity) and service has specific power which can satisfy the specific desire of human beings, this particular power is called Utility of that Product or Service.
All above Commodities have a specific Power which can Satisfying our specific wants or desires. All these commodities which holds that particular power it’s called utility of commodity.
What Doctor, Teacher, Engineer or A Pandit ji is selling……?
They Selling Their Services to other people, alright! So all These intellectual persons are also holds a specific power which can fulfil our requirements or our needs or we can say desires.
This power is their Utility… It is the Utility of Their Service.
Utility analysis is one of the consumer behaviours studies how the consumer gives his reaction against to the price of any commodity or against the quality of any commodity or service.
consumer behaviour refers to the phenomenon of the consumer’s reaction reflected in the market through to the instrumentally of price by way of preference and liking.
There are three approaches to study the consumer behaviour
- Alfred Marshall’s Cardinal utility approach
- Hicks and Allen’s ordinal approach for popularly known as indifference curve approach
- Paul Samuelson’s revealed preference theory
MEANING OF UTILITY
Utility is the want satisfying power of a commodity or service. anything that satisfy human wants is said to possess utility for example food has the power to satisfy hunger soft drink to satisfy our thirst. This power considered as the utility of that product
The following are the important characteristics of the utility
- Utility is different from the satisfaction
Utility is related to the good or service but satisfaction is always related to the consumer. Every good or service has the quality of utility, but it is not necessary that the consumer will be ultimately satisfied with the use of that good or service.
- Satisfaction realised may be more than or less than the utility- The actual satisfaction of the consumer may be more or less than the utility derived from the consumption of the commodity or service.
- Utility is neutral-
- Utility is not objective but it is subjective- Utility is always subjective not objective i.e. utility always depends on who is consuming the goods or services.
- The utility of commodity depends upon attribute and state of mind of consumer and time
- Measurability of utility– Of course, utility can be measured in many ways.
CONCEPT OF THE TOTAL UTILITY AND MARGINAL UTILITY
The total utility of any quantity of it is some of the utility is derived from the consumption of the successive unit still certain quantity level
Marginal utility of a commodity is the change in the total utility resulting from the consumption of one more unit of that commodity of other things remain the same marginal utility of the end unit of the commodity consumed is equal to the total utility from the N unit – total utility from the (N -1) unit of the commodity
Basic assumptions of the Cardinal utility analysis
- Rationality of the consumer every consumer is rational and he is willing to maximize his satisfied by maximizing office total utility
- The cardinal measurability of utility
- The hypothesis of the independent utilities
- Marginal utility of money is constant
- Diminishing marginal utility
|TIME||CUP OF COFFEE||TOTAL UTILITY||MONEY SPENT||MARGINAL UTILITY||CONSUMER SURPLUS||CONSUMER DEFICIT|
|10:00 AM||1ST||15||₹ 15||15||**||**|
|11:00 AM||2ND||28||₹ 15||13||**||02|
|12:00 AM||3RD||35||₹ 15||7||**||08|
|01:00 PM||4TH||40||₹ 15||5||**||10|
|02:00 PM||5TH||42||₹ 15||2||**||13|
|03:00 PM||6TH||42||₹ 15||0||**||00|
|04:00 PM||7TH||40||₹ 15||-2||**||-17|
|05:00 PM||8TH||37||₹ 15||-3||**||-18|
|06:00 PM||9THs||32||₹ 15||-5||**||-20|
Marshallian utility approach can be used for determination of the consumer’s equilibrium in the following manner by explaining two most important laws developed by utility analysis number
- law of diminishing marginal utility
- law of equi marginal utility
in fact, with the help of these two laws the famous law of demand has been derived now we will explain these two law in details
LAW OF DIMINISHING MARGINAL UTILITY
EXPLANATION OF THE LAW- law of diminishing marginal utility
The law of diminishing marginal utility stats as consumer consumes more and more unit of a commodity the utility from each of the successive unit goes on diminishing
As consumer increases the quantity of accommodate its marginal utility diminishes this mean that marginal utility curve is negatively sloped the marginal utility can be zero and even negative the zero marginal utility implies that if one more unit of commodity is consumed by the consumer the total utility does not increase rather it will decline in other word if the consumer reduces the consumption of 1 unit of commodity the total utility will in infect tries does when total utility is maximum the marginal utility is zero it is the position of the consumer’s equilibrium for maximum satisfaction this position is also called as the point of saturation
EXPLANATION OF THE LAW- law of Equi-Marginal utility
Law of diminishing marginal utility explained the equilibrium of the consumer when consumer is consuming only one commodity whereas the principle of the equal marginal utility explains the equilibrium of the consumer consuming many commodities,
Suppose there are two commodities X and Y on which a consumer has to spend a given income the consumer behaviour will be governed by two factors first the marginal utility of the commodity and second the price of these two commodities suppose the prices of the commodity are given.
Law of equi marginal utility states that the consumer will distribute his income between the commodities in such a manner that the utility of 10 from the last rupee spent on each commodity is equal in other consumer is in equilibrium when the marginal utility of money spent on each commodity is the same. In other word we can say the consumer will behave like a very intelligent actually behaviour and he spend his income among the commodities where he will get maximum satisfaction