difference between law of DMU law of Equi marginal utility? 6 points [6 marks]
Chapter-2 (named as 'Theory of Consumer Behaviour')- Lesson-1 (named as 'Cardinal Approach and Utility Analysis, Total Utility and Marginal Utility')-under the topics 'Law of Diminishing Marginal Utility' and 'Consumer's Equilibrium in Case of Many Commodities- Two Goods Case'
Definition andStatement of the Law:Utility refers to the amount of satisfaction a person gets from consumption of a certain item.and marginal utility refers to the addition made to total utility, we get after consuming one more unit.
The law of diminishing marginal utility explains the downward sloping demand curveExplanation:As more and more quantity of a commodity is consumed, the intensity if desire decreases and also the utility derived from the additionalQuantityTotal UtilityMarginal Utility1101021883246428453026300728-2
With the help of above schedule the relationship between TU and MU is explained as:
- In the above schedule MU decreases and TU increases at a decreasing rate upto 5th unit of commodity.
- MU becomes zero at 6th unit and TU = 30 become maximum.
- When MC becomes negative, the TU declines from 30 to 28 units at 7th units of a commodity.
With the help of the above schedule the relationship between MU and TU can be represented in the diagram.