Introduction: A consumer demands a good or a service.

He demands a good because it

gives him utility. Wants satisfying capacity of a good is called utility.
Meaning of Utility: The term utility in economics is used to denote that quality in a
commodity or service by virtue of which our wants are satisfied. In other words, want
satisfying power of a good is called utility.
According to Mrs. Robinson, Utility is the quality in commodities that makes
individuals wants to buy them.

Features:
1. Utility is Subjective: as it deals with the mental satisfaction of a man. A thing may
have different utility to different persons. E.g. Liquor has utility for drunkard but for
person who is teetotaller, it has no utility.
2. Utility is Relative: As a utility of a commodity never remains the same. It varies with
time and place. E.g. Cooler has utility in summer not during winter season.
3. Utility is not essentially Useful: A commodity having utility need not be useful. E.g.
Liquor and cigarette are not useful, but if these things satisfy the want of addict then
they have utility for him.
4. Utility is independent of Morality: It has nothing to do with morality. Use of opium
liquor may not be proper from moral point of view, but as these intoxicants satisfy
wants of the opium eaters, drunkards, they have utility.

Concepts of Utility: 1) Initial Utility: The utility derived from the first unit of
commodity is called initial utility. It is obtained from the consumption of the first unit of
a commodity. It is always positive.
2) Total Utility: The aggregate of utility obtained from the consumption of different
units of a commodity, is called Total utility.
3) Marginal Utility: The change that takes place in the total utility by the consumption
of an additional unit of commodity is called marginal utility.

LAW OF DIMINISHING MARGINAL UTILITY

Law of Diminishing Marginal Utility is the foundation stone of utility analysis. All of us
experience this law in our daily life. If you buy pen at any given time, then as the
number with you is increasing, the marginal utility from each successive pen will go on
decreasing. It is the reality of mans life which is referred to in economics as Law of
Diminishing Marginal Utility.

Definitions:
According to Marshall, The additional benefit which a person derives from a given
stock of a thing diminishes with every increase in the stock that he already has.
According to Chapman, The more we have of a thing, the less we want additional
increments of it or more we want not to have additional increments of it.
According to Samuelson, As the amount consumed of good increases, the marginal
utility of a good tends to decrease.
It is clear from the above definitions that at a given time when we go on consuming
additional units of a commodity, the marginal utility from each successive unit of that
commodity, other things being equal, goes on diminishing in relation to the preceding
unit. It is this diminishing tendency of the marginal utility that has been enshrined in
the law of diminishing marginal utility.
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Assumptions:
1. Utility can be measured in the Cardinal number system.
2. Marginal Utility of money remains constant.
3. Marginal Utility of every commodity is independent.
4. Every unit of the commodity being used is of same quality and size.
5. There is a continuous consumption of commodity
6. Suitable quantity of a commodity is consumed.
7. There is no change in the income of consumer.
8. There is no change in the price of commodity and its substitutes.
9. There is no change in the tastes, character, fashion, and habits of consumer.