SCHOOL OF LEGAL STUDIES

DEPARTMENT OF LAW

COURSE: MICROECONOMICS

ASSIGNMENT ON: MARSHALLIAN LAW OF CARDINAL APPRAOCH TO DEMAND ANALYSIS

SUBMITTED BY :

NAME : MOHD FAIZ AHMED

ENROLL NO. :

SEMESTER : 1ST

COURSE : BA LLB (5YRS)

EMAIL ID : [email protected] 7844967928

SUBMITTED WITH REGARDS ,

TO,

DR. JAVAID AHMAD MIR

DEPARTMENT OF LAW SCHOOL OF LEGAL STUDIES, CENTRAL UNIVERSITY OF KASHMIR.

The economists analyze the consumer behavior through two principles known as utility analysis
and indifference curve analysis. Utility analysis is the oldest method and usually known as Prof.
Marshall’s demand principle. Modern economists study the consumer demand with the help of
indifference curve analysis.

Meaning of Utility
Utility means the property of any goods or service to satisfy any human want. That property,
ability and characteristic of any commodity which can fulfill any particular human want is called
as utility of that commodity.
According to Prof. E. Waugh, “To the economist utility is the ability to satisfy human wants.”
According to Thomas,” Utility is that property of a commodity which is inside it, for the
satisfaction of human needs.”
This way, the want satisfying property gives the birth to utility. Utility is a psychological concept
dependent on the mental makeup of a consumer. For example, one person may be more
satisfied with a blue tie as compared to another person who does not like blue color. Different
people have different utility with the same product or commodity. Utility is subjective
phenomenon and remains in the individual mind and that is the reason for different utility for
different people for the same commodity.

Characteristics of Utility
It is necessary to understand following characteristics for complete understanding of utility
concept:
1. It is a psychological phenomenon: The utility can only be felt. It is related to the inner
emotions of the individual. Utility depends on mental makeup of consumer. It can only be
known through introspection. It is totally invisible and is not having any physical entity.
2. It is a relative term: The utility changes according to place, time fashion and taste of
consumer. For example, a bread is useful for a hungry man but for a person who is not
hungry, it does not have any utility. It is affected by time and place also. Similarly, blanket
is useful is winter and not is summer.
3. Utility exists both in useful and harmful commodities: Milk, butter, fruits, vegetables,
eggs etc. are called useful commodities whereas liquor, cigratte, drugs etc. are harmful
 for the health. In economics both harmful and useful commodities have utility. A harmful
product like liquor may be useful for drunker because it gives utility and high degree of
satisfaction to him
4. Utility does not depend on actual consumption: Utility and satisfaction are two different
terms. Utility means ‘expected satisfaction’ rather than ‘actual satisfaction’. A consumer
anticipates the utility while purchasing of a commodity whereas satisfaction is obtained
by actual consumption of the commodity. Expected satisfaction or utility depends on
intensity of desire of the consumer.

Measurement of Utility
Utility is based on mental make up of the individual. It is intangible and dynamic. This utility can
not be measured physically and directly. But, there are two popular methods for indirect
measurement of utility:
a) Cardinal approach, and (b) Ordinal approach. Both the approaches have been taken from
mathematics.

(A) Cardinal Approach : Marshall & some other economists have basically suggested to
measure utility by money related scale. The price, which the customer is ready to pay for
any commodity is the measure of utility of that particular commodity. For example, if Ram
is ready to pay Rs. 4 for a pen and Rs. 10 for a book, we may say that the utility of pen is
equal to Rs.4 and the utility of the book is Rs.10. This way, the utility is measurable. The
economists who believe in such concept are called cardinalists, 1,2,3 etc. are cardinal
numbers. These numbers clarifies that 4 is twice equal to 2, their difference is 2 and sum
is 6. According to this approach, utility can be provided in cardinal numbers and
quantitative measurement is possible. This way the measurement and comparison
between the utility of two commodities become possible.

Kinds of Utility
Utility is of two types : Marginal utility and Total utility. Apart from these two, there is the
concept of average utility also, by which average of utility is measured. In that we divide the
total utility by number of units consumed.
Meaning of Marginal Utility
Marginal utility is the utility derived from using an additional unit of any commodity. We may
also say that marginal utility is utility derived from the marginal unit consumed. For example, if
the total utility derived from consuming first apple is 60 and second is 90 then the marginal
utility is 30. In the words of K.E. Boulaing, “Marginal utility refers to the extra utility added by
one extra last unit of a good.”
In simple way MU = TUn+1 – TUn
So, Marginal utility = Total Utility of n+1 units- Total utility of n units. Marginal utility is of 3 types
: positive, zero and negative. The marginal utility resulting from the consumption of units of
product starts from positive and the total utility increases with the addition in units. It reaches
to a point of highest satisfaction where marginal utility becomes zero and total utility becomes
constant. After this point increase in consumptions leads to negative marginal utility and total
utility starts decreasing.
It can be say that in normal way marginal utility is of three types and can be illustrated as below
:

No. of units of Apple Marginal Utility Total Utility

1 50 50
2 40 90
3 20 110
4 15 125
5 5 130
6 0 130
7 -5 125
8 -10 115

In the above table, as consumer consumes more units of commodity, his total utility increases
but the marginal utility falls with the every additional unit. As per the table the marginal utility
is positive till the consumption of 5th unit. The utility of sixth unit is zero and this is the point of
satiety or point of saturation. If the consumer intake the additional units of seventh and eighth,
it generate negative marginal utility. This example can be shown through diagram as below :
Meaning of Total Utility
The aggregrate of marginal utility derived from the various units of commodity is called total
utility. According to A.L. Meyers, “ Total utility is the sum of the marginal utilities associated
with the consumption of the successive units. “It means that if a person is consuming some units
of any commodity, his total utility will be the sum of individual utility derived from each unit of
the commodity.
Relationship Between Marginal Utility and Total Utility
There is a close relationship between marginal utility and total utility. The marginal utility shows
the rate of change in total utility whereas the total utility shows the sum of marginal utility. In
other words, marginal utility can be measured from total utility curve and total utility can be
measured from total utility curve and total utility can be measured from marginal utility curve.

The following rationship is clear from the diagram between marginal and total utility :
1) When marginal utility is positive, the total utility increases with diminishing rate. It
happens till fifth unit of apples.
2) When marginal utility is zero, the total utility is maximum and constant. The sixth unit
consumption of apple is the point os satiety, where total utility is maximum.
3) After this point of saturation (after sixth apple) the consumption of additional unit of
apple gives negative utility and the total utility starts falling.
Thus, we can say that there is an interrelated and close relationship between the marginal utility
and total utility, because when marginal utility is negative, total utility increases and it is
maximum when marginal utility is zero and when the marginal utility is negative total utility
starts falling.
Law of Diminishing Marginal Utility
Man can only fulfill his few wants among unlimited wants due to limited resources. In starting
the wants may be very strong but with increase in the consumption of units these wants get
weaker. This experience gas been considered as law of diminishing marginal utility in economics.
The German economist H.H Gossen has firstly used this law and thus, it is also called as Gossen’s
first law. Later the economists like Bentham, William Stanley Jevons and Marshall have
presented its scientific explanation.
Meaning Of Law
One of the main characteristics of utility is that as an individual purchases more units of any
commodity its utility starts decreasing. Some of the important definitions regading law of
diminishing marginal utility are as below.
According to Marshall, “The additional benefit which a person derives from given increase of
stock of a thing diminishes, other things being equal, with every increase in the stock of that he
already has.” This depicts that the utility obtained from subsequent units of commodity gets
diminishes, when other things are equal.
In simple word, In making choices, most people spread their incomes over different kinds of
goods. People prefer a variety of goods because consumeng more and more of any one good
reduces the marginal satisfaction derived from further consumption of the same good. This law
expresses an important relationship between utility and the quantity consumed of a
commodity.

Diagrammatic Explanation of Law of DMU

Unit of Apples Marginal Utility Total Utility

1 7 7
2 6 13
3 4 17
4 2 19
5 1 20
6 0 20
7 -1 19
8 -2 17

It is clear from the table that increase in the consumption of units of apple results in decrease
of marginal utility.
In conclusion, we can say :
1. Positive marginal utility till the fifth unit results in rise in total utility.
2. Total utility is maximum at sixth unit when marginal utility is zero.
3. Total utility starts diminishing in seventh and eighth unit when marginal utility is negative.
Assumption of law of DMU
The law of DMU operates under certain specific conditions. Economists call them the
‘assumptions’ of this law. These are as follows :

1. Cardinal measurement of utility: It is assumed that utility can be measured and a

consumer can express his satisfaction in quantitative terms such as 1,2,3, etc.
2. Monetary measurement of utility: It is assumed that utility is measurable in monetary
terms.
3. Consumption of reasonable quantity: it is assumed that a reasonable quantity of the
commodity is consumed. For example, we should compare MU of glassfuls of water and
not of spoonfuls. If a thirsty person is given water in a spoon, then every additional spoon
will yield him more utility. So, to hold thye law true, suitable and proper quantity of the
commodity should be sonsumed.
4. Continuous consumption: It is assumed that consumption is a continuous process. For
example, if one ice-cream is consumed in the morning and another in the evening, then
the second ice-cream may provide equal or higher satisfaction as compared to the first
one.
5. No change in Quality: Quality of the commodity consumed is assumed to be uniform. A
second cup of ice-cream with nuts and toppings may give more statisfaction than the first
one, if the first ice-cream was without nuts or toppings.
6. Rational consumer: The consumer is asumed to be rational who measures, calculates and
compares the utilities of different commodities and aims at maximising total saisfaction.
7. Inependent utilities: It is assumed that all the commodities consumed by a consumer are
independent. It means, MU of one commodity has no relation with MU of another
commodity. Further, it is also assumed that one person’s utility os not affected by the
utility of any other person.
8. MU of money remains constant: As a consumer spends money on the commodity, he is
left with lesser money to spend on other commodities. In this process, the remaining
money becomes dearer to the consumer and it increases MU of money for the consumer.
But, such an increase in MU of money is ignored. As MU of a commodity has to be
measured in monetary terms, it is assumed that MU of money remains constant.
9. Fixed Income and prices: It is assumed that income of the consumer and prices of the
goods which the consumer wishes to purchase remain constant.
10.Perfect knowledge: It is assumed that the consumer knows the different goods on which
his income can be spent and the utility that he is likely to get out of such consumption. It
means, that the consumer has perfect knowledge of the vatious choices available to him.