UTILITY

Want satisfying power or capacity of a product. Every product should have utility. Utility is the basic quality of a product

TYPES OF UTILITY
FORM UTILITY Utility derived or increased by changing the form or shape of a commodity. E.g. R/M converted in to F/G, Wood converted in to Furniture PLACE UTILITY Utility derived or increased by changing the place from one place to another. E.g. Vegetables are transported from farm to market, they get place utility. Transport services provide place utility.

Cont..
TIME UTILITY Utility derived or increased due to change of time or season. E.g. Raincoats get time utility during rainy season SERVICE UTILITY Utility derived by people from the services of doctors, lawyers, teachers etc.

FEATURES OF UTILITY
Subjective Concept It is a psychological concept & varies from person to person. Utility of a commodity cannot be the same for all individuals Relative Concept Utility varies from time to time & from place to place. Woolen clothes during winter are more preferred at Kashmir that at Mumbai

Cont.
No Moral or Ethical Significance A commodity that satisfies a want has utility. Commodity per say may be good or bad, moral or immoral, harmful or harmless. Different from Usefulness product may be useful or useless. But if it satisfies a want, it has utility. E.g. drugs, liquor, cigarettes etc.

Cont.
Different from Pleasure A commodity may have utility but its consumption may not give any pleasure to the consumer. E.g. Medicines No Cardinal Measurement Utility is a psychological concept and it varies from person to person. It cannot be measured in numerical terms.

Cont
Depends on Intensity of Want If the want is very intense or urgent, the commodity may give more utility to the consumer. Utility of want diminishes as the intensity of want diminishes.

LAW OF DIMINISHING MARGINAL UTILITY

The law states that other things being equal, the marginal utility derived from successive units of a given commodity goes on diminishing. So, the larger the stock of a commodity we have, the lower is its marginal utility.

LAW OF DMU
ASSUMTIONS Limited Income Single Commodity Utility is Cardinal Rational Behaviour (Max Satisfaction) Continuous Consumption Homogenous Units Divisible Commodity MU of money is constant Other Factors Constant EXCEPTIONS Hobbies Drunkards/Drug Addicts Greedy Nature Music & Poetry Reading Money (more satisfaction with more money)

LIMITATIONS OF THE LAW

Law is based on various assumptions. In reality such assumptions never exists. No Cardinal Measurement Single Commodity in reality consumer does not spend his income on a single commodity. But he prefers number of commodities MU of money remains constant. But it varies from person to person & depends on price.

UTILITY SCHEDULE
Units of Commodity No. of Apples 1 2 3 4 5 6 8 6 4 2 0 -3 8 12 12 8 0 -18 Marginal Utility Total Utility

Y Axis 20 18 16 14 12 10 8 6 4 2 0 1 -2 2 3 4

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5 6 X Axis

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