consumption function

Marshall's cardinal utility analysis has been criticised on the following grounds; - 1) Utility cannot be measured cardinally 2) Money is an imperfect measure of utility 3) Consumer is not of a calculating mind 4) MArginal utility of money is not constant 5) It does not study the income,  price and substitution effect 6) It fails to clarify the study of inferior and Giffen goods

Introduction  This law was given by Gossen. It is also known as :- Proportionality  Rule, Law of substitution, Law of maximum satisfaction, Law of Indifference, Gossens second law. This law tells us how a consumer maximises his total utility. Marshall defined it as "If a person has a thing which he can put to several uses,  he will distribute it among these uses in such a way that it has the same marginal utility in all." Explanation   Every consumer has unlimited wants but his money income is limited. So he will allocate his given income in such a way that he gets maximum satisfaction from every purchase. For this he will compare the marginal utilities of different commodities he wants to buy and also the marginal utility of each commodity to its price. Since each commodity has a price of its own,  the consumer will so allocate his budget on food,  clothing,  recreation and medical care,  etc, that each good will give him same marginal ...

Relation between Total Utility and Marginal Utility : There is a close relationship between Total Utility and Marginal Utility. As there is increase in the unit of a particular commodity, the Marginal Utility goes on diminishing and Total Utility goes on increasing. Total Utility goes on increasing up to that extent till the Marginal Utility becomes Zero. When Marginal Utility is zero Total Utility is maximum. After Zero,Marginal Utility comes to negative and the result is that Total Utility starts reducing. Relationship between Total Utility and Marginal Utility can be stated as follows: 1) Marginal Utility goes on diminishing with the consumption of every additional unit. (2) Total Utility goes on increasing with the consumption of every additional unit but at a diminishing rate. (3) Marginal Utility is equal to the increase in the Total Utility. Total Utility is the sum total of the Marginal Utilities derived from all the units consumed. (4) When Marginal Utility becom...

1) Total Utility: Total Utility is the utility from all units of consumption. According to Mayer's—”Total Utility is the sum of the marginal utilities associated with the consumption of the successive units.” 2) Marginal Utility : Marginal utility is the utility derived from the last or marginal unit of consumption. It refers to the additional utility derived from an extra unit of the given commodity purchased, acquired or consumed by the consumer. It is the net addition to total utility made by the utility of the additional or extra units of the commodity in its total stock. It has been said—as the last unit in the given total stock of a commodity. According to Prof. Boulding—”The marginal utility of any quantity of a commodity is the increase in total utility which results from a unit increase in its consumption.”

Can Utility  be Measured? Utility is a psychological concept. This is different for different people. Therefore, it cannot be measured directly. Professor Marshall has said that “Utility can be measured and its measuring rod is ‘money. The price which we are ready to pay for an article is practically its price. Nobody will be prepared to pay more than the utility which we derive from the article. For example: If I am ready to pay Rs. 1500 for a watch and Rs. 2,000 for a Radio. Then I can say that I derive utility from that watch up to the value of Rs. 1500; and from Radio up to the value of Rs. 2,000. “The inference which we can draw from the above example is that the price which we pay for any article is the utility which we derive from that article.” But Prof. Hicks, Allen and Pareto have not supported Marshall’s view of measuring utility. Measurement of Utility Measurement of a utility helps in analyzing the demand behavior of a customer. It is measured in two ways ...

WHAT IS UTILITY? It is a measure of satisfaction an individual gets from the consumption of the commodities.  In other words, it is a measurement of usefulness that a consumer obtains from any good.  A utility is a measure of how much one enjoys a movie, favorite food, or other goods. It varies with the amount of desire.It is simply the want satisfying power of a commodity. According to Prof. Waugh: “Utility is the power of commodity to satisfy human wants.” One can conclude the following conclusions A Utility of a good differs from one consumer to another. It keeps on changing for the same consumer due to change in the amount of desires. It should not be equated with its usefulness. Characteristic of Utility It is dependent upon human wants. It is immeasurable. A utility is subjective. It depends on knowledge. Utility depends upon use. It is subjective. It depends on ownership.