Question

Answer the following questions:

1. Explain the relationship between TU and MU.

2. What are the characteristics of utility?

Answer 1

1) The following points highlight the relationship between TU (Total Utility) and MU (Marginal Utility).
i. As more and more units of the commodity are consumed, the marginal utility derived from the consumption of each additional unit of the commodity tends to fall. With the consumption of the successive units, the marginal utility becomes zero and, consequently, becomes negative.
ii. As long as MU, derived from the consumption of additional units of the commodity, is positive, TU continues to rise.
iii. When TU reaches the maximum point, MU becomes zero.
iv. When TU starts falling, MU becomes negative.
v. MU is derived from TU as:
MU_n = TU_n − TU_{n −1}
vi. TU is defined as the summation of all the marginal utility values, given as:
TU_n = MU₁+MU₂+ MU₃+..............+MU_n = ∑MU.

Diagrammatically, the relationship between the TU and MU can be expressed as follows.



2) The following are the characteristics of utility:
i. Relative concept - Utility is a relative concept as it differs from time to time and from place to place. For instance, woollen clothes have more utility in winters and less in summers. Similarly, woollen clothes have more utility in Kashmir than in Jaipur.
ii. Subjective concept - Utility refers to the satisfaction that a consumer expects to derive from the consumption of a particular good. It is a subjective concept as it varies from person to person and from time to time. A consumer himself defines the utility derived from the consumption of a good.
iii. Ethically neutral - Utility is said to be ethically neutral as it does not discriminate between commodities on the basis of characteristics such as good, bad, moral, immoral etc. This implies that a commodity may provide utility even when it is socially undesirable.
iv. Utility and usefulness are different- Utility and usefulness are two different concepts. Utility means the satisfaction derived from the consumption of a good. On the other hand, usefulness is the benefit obtained from the commodity.
v. Utility is not the same as pleasure- Utility does not imply pleasure. That is, it is not necessary that a commodity that has utility will always provide pleasure or happiness to the consumer.
vi. Utility is different from satisfaction- While utility refers to the want satisfying capacity of a commodity, satisfaction is an expression of the feeling of happiness. Moreover, utility is the anticipated level of satisfaction, while satisfaction is actually realised by the consumer.
vii. Utility is not easily measurable - Utility is difficult to measure in terms of numbers (cardinal measurement). It is a psychological concept, as it cannot be seen or touched, but can only be experienced.
viii. Depends upon the intensity of want - This means that the utility derived from the consumption of a commodity depends upon the intensity of want for that commodity. The greater the intensity of want, the greater is the utility derived from the consumption of the commodity.
ix. It is the basis of demand- Demand for a commodity is based on the utility derived from it. A person will demand a commodity only if it gives him/her some satisfaction or utility, otherwise, it will not be demanded.