The budget line is a graphical representation of all the bundles that cost the same as the consumer’s income. The budget line depicts two different combinations of goods that a consumer can buy based on his or her income and commodity prices. The rate at which a consumer substitutes one good for another as long as the latter good is providing equal satisfaction is known as the marginal rate of substitution. When a consumer consumes the 6th unit of the commodity, s/he gets no utility or there is zero utility and as a result, total utility (TU) remains constant and becomes maximum. There is a direct relationship between total utility and marginal utility.
In this article we will discuss about the relationship between Total Utility and Marginal Utility.
If there is a change in the price of one of the goods, this causes the budget line to rotate. The fall in the price causes outward radiation, which happens because there is a rise in the purchasing power of money. It asserts that when the price of an item decreases, the amount required rises, and when the price of a commodity rises, the quantity demanded declines. In other words, if everything else remains constant, the price of a commodity and its quantity requested have an inverse relationship. If we sum the utilities obtained from the consumption of different units of a particular commodity at a given time, then we get the numerical value of total utility. To draw the curves of total utility and marginal utility, we take total utility from column (2) of Table 1.
FAQs on Theory of Consumer Behaviour Class 12 Notes CBSE Micro Economics Chapter 2 (Free PDF Download)
Total utility is always based on marginal utility as a total utility (TU) is the summation of marginal utilities. The relationship between TU and MU can be explained with help of the following table. It is possible that there can be a parallel shift in the budget line. The change happens because of the change in the consumer’s income and a change in the goods’ prices. When there is a rise in consumer income, it shifts the budget line towards the right. When there is a drop in the consumer’s income, it shifts the budget line to the left.
In the above table, there are three forms of marginal utility (MU) as positive, zero, and negative marginal utility. Up to 5 units of consumption, marginal utility (MU) is decreasing and remains positive. Until the marginal utility (MU) is positive, total utility (TU) surges/rises at a declining rate. A shift in the demand curve is caused by changes in non-price factors, such as income, taste, expectation, population, price of comparable commodities, and so on. Movement along a demand curve occurs when changes in quantity sought are connected with variations in commodity price.
When the former reaches the highest point Q1 the latter touches the X-axis at point С where the MU is zero. When the TU curve starts falling from Q onwards, the MU becomes negative from С onwards. Elasticity of demand is measured at any location by dividing the length of the lower segment of the demand curve by the length of the upper segment of the demand curve at that point. At the midpoint of any linear demand curve, the value of ed is unity.
If you want to score well in economics, all you need to do is go through these Class 12 Microeconomics Chapter 2 notes that give you a sound foundation on the topic. The notes have been prepared by experts at Vedantu, taking care that the latest CBSE curriculum has been followed. The benefit of the Theory of Consumer Behaviour Class 12 notes PDF is that it lets you pick your area of weakness and keep revising it thoroughly to perform well in the exam. 1.Consumer The one who takes decisions about what to buy for the satisfaction of wants, both as an individual or as a member of a household, is called a consumer. With the help of the above schedule the relationship between MU and TU can be represented in the diagram. Ans.The wants satisfying power of a good is called utility.
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By connecting the tops of these rectangles with a smooth line, we get the TU curve that peaks at point Q and then slowly declines. To draw the MU curve, we take marginal utility from column (3) of the table. The prices of the two goods are Rs 4 and Rs 5 respectively. A linear demand curve’s elasticity may be simply assessed graphically. The elasticity of demand at each point on a straight line demand curve is determined by the ratio between the demand curve’s lower and upper segments at that position. Changes in the quantity demanded are indicated by movement along the demand curve.
Consumer’s Optimum Choice:
In the diagram, where the IC curve is tangent to the budget line, that is point E is the optimal choice, and also a point of consumer equilibrium. This is the point where the slope of both, the indifference curve and budget line are equal to when mu is falling tu is each other. Suppose a consumer wants to consume two goods which are available only in integer units.
Theory of Consumer Behaviour Class 12 Notes CBSE Micro Economics Chapter 2 (Free PDF Download)
- The fall in the price causes outward radiation, which happens because there is a rise in the purchasing power of money.
- The budget line’s slope indicates how much change in good 2 is necessary per unit of change in good 1 along the budget line.
- When the former reaches the highest point Q1 the latter touches the X-axis at point С where the MU is zero.
As the consumer consumes the first unit of commodity, s/he obtains 10 utils of utility. When the consumer consumes 2nd unit of goods, TU increases to 18 utils from 10 utils and MU decreases to 8 utils. Accordingly, when the consumer consumes the 6th unit of goods, MU decreases to zero where TU becomes maximum (30 utils).
This law is also called as a ‘Fundamental Law of Satisfaction’ or ‘Fundamental Psychological Law’. The marginal utility can be defined as an extra utility drawn from an extra unit of a commodity. Hence, it is the change in total utility while consuming one more unit of commodity. In other words, it is the ratio of change in total utility with the change in units of a commodity (normally one unit). Marginal utility is the addition made to total utility by having an additional unit of the commodity.
The two goods are equally priced at Rs 10 and the consumer’s income is Rs 40. The preferences of the consumer are known as monotonic preferences. This is where one bundle has more than the other of one good and not less of the other good in between two bundles.
When MU is falling, TU is ……………… (a) rising (b) falling (c) not changing (d) maximum
It is because of the MRS diminishing, that the indifference curve is convex in nature. As with increase in quantity of one good, the consumer forgoes less and less of the ther good. It is the fundamental Law of Utility approach to consumer’s equilibrium. This law states that as more and more standard units of a commodity are continuously consumed, the Marginal Utility obtained from each successive unit goes on diminishing.
According to the IC analysis, a buyer maximises his utility by selecting a package of two commodities that is also within his budget. This will be used to calculate a commodity’s demand curve. The MU curve is represented by the increment in total utility shown as the shaded block for each unit in the figure. When the tops of these blocks are joined by a smooth line, we obtain the MU curve. So long as the TU curve is rising, the MU curve is falling.
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