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Consumer Behaviour

The document discusses the concept of utility in consumer behavior, defining it as the capacity of goods or services to satisfy human wants. It outlines characteristics and types of utility, including marginal, total, and average utility, and explains the relationship between them, emphasizing that utility is subjective and cannot be measured objectively. The document also highlights the diminishing marginal utility and its implications for total utility as consumption increases.

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Himanshu Sharma
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11 views8 pages

Consumer Behaviour

The document discusses the concept of utility in consumer behavior, defining it as the capacity of goods or services to satisfy human wants. It outlines characteristics and types of utility, including marginal, total, and average utility, and explains the relationship between them, emphasizing that utility is subjective and cannot be measured objectively. The document also highlights the diminishing marginal utility and its implications for total utility as consumption increases.

Uploaded by

Himanshu Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Dr.

Anjali Prasad Topic:-Consumer behavior


Department of Economics Class:-BA Part 1 Hons.
TPS College, Patna

Utility
Meaning: Wants satisfying capacity of goods or services is called Utility.

According to Prof. Waugh:


“Utility is the power of commodity to satisfy human wants.”

Characteristics of Utility:
1. Utility has no Ethical or Moral Significance.
2. Utility is Psychological.
3. Utility is always Individual and Relative.
4. Utility is not Necessarily Equated with Usefulness.
5. Utility cannot be Measured Objectively.
6. Utility Depends on the Intensity of Want.
7. Utility is Different from Pleasure.
8. Utility is also Distinct from Satisfaction.

Types of Utility:
There are following types of utility:

1. Form Utility.
2. Place Utility.
3. Time Utility.
4. Service Utility.

Can Utility be Measured?


Utility is a psychological concept. This is different for different people.
Therefore, it cannot be measured directly. Professor Marshall has said that
“Utility can be measured and its measuring rod is ‘money. The price which
we are ready to pay for an article is practically its price. Nobody will be
prepared to pay more than the utility which we derive from the article.
For example:
If I am ready to pay Rs. 1500 for a watch and Rs. 2,000 for a Radio. Then I
can say that I derive utility from that watch up to the value of Rs. 1500; and
from Radio up to the value of Rs. 2,000. “The inference which we can draw
from the above example is that the price which we pay for any article is the
utility which we derive from that article.” But Prof. Hicks, Allen and Pareto
have not supported Marshall’s view of measuring utility.

They are of this opinion that measuring of utility is not possible because
of the following reasons:
(i) Utility is personal, psychological and abstract view which cannot be
measured like goods.

(ii) Utility is different for different people. Utility is always changeable and it
changes according to time and place. Therefore, it is difficult to measure such
thing who is of changeable nature.

(iii) Further, measuring material ‘money is not static. Value of money always
changes, therefore, correct measurement is not possible.

Kinds of Utility:
Utility are of three kinds:
(i) Marginal Utility, (ii) Total Utility, (iii) Average Utility

(i) Marginal Utility:


Definition:
Marginal utility is the utility derived from the last or marginal unit of
consumption. It refers to the additional utility derived from an extra unit of
the given commodity purchased, acquired or consumed by the consumer .It is
the net addition to total utility made by the utility of the additional or extra
units of the commodity in its total stock. It has been said—as the last unit in
the given total stock of a commodity. According to Prof. Boulding—”The
marginal utility of any quantity of a commodity is the increase in total utility
which results from a unit increase in its consumption.”
For example:
Suppose Mr. Shanker is consuming bread and he takes five breads. By taking
first unit he derives utility up to 20; second unit 16; third unit 12; fourth unit
8 and from fifth 2. In this example the marginal unit is fifth bread and the
marginal utility derived is 2. If we will consume only four bread then the
marginal unit will be fourth bread and utility will be 8.

Kinds of Marginal Utility—Marginal utility is of three kinds:


(i) Positive Marginal Utility. (iii) Negative Marginal Utility.

(ii) Zero Marginal Utility.

It is a matter of general experience that if a man is consuming a particular


goods, then receiving of next unit of goods reduces the utilities of the goods
and ultimately a situation comes when the utility given by the goods become
zero and if the use of the goods still continues, then the next unit will give
dis-utility. In other words it can be said that we will derive “negative utility”.

This can be studied better by the following table:

From the table given above it is clear that up to the consumption of the fifth
bread we receive positive utility; 6th unit is the unit of full satisfaction i.e.,
Utility derive from that unit is zero. From 7th unit the utility received will be
negative utility. The table can be represented in shape of diagram as follows:
In diagram No. 1 OX axis (line) shows unit of bread and OY line shows the
Marginal Utility received. From the figure it is clear that from the first unit of
bread utility received are 20 which has been shown on the top of the line.
Similarly 2, 3, 4, 5 Unit of bread’s utility is 16, 12, 8, 4 respectively All these
have been shown on OX line which shows positive marginal utility. Utility of
the sixth bread is zero and that of the seventh bread is negative and negative
rectangle has been shown below OX line.

Zero Utility:
When the consumption of a unit of a commodity makes no addition to the
total utility, then it is the point of Zero Utility. In our table the total utility,
after the 6th unit is consumed. This is the point of Zero Utility. It is thus seen
that the total utility is maximum when the Marginal Utility is zero.

Negative Utility:
Negative Utility is that utility where if the consumption of a commodity is
carried to excess, then instead of giving any satisfaction, it may cause dis-
satisfaction. The utility is such cases is negative. In the table given above the
marginal utility of the 7th unit is negative.

(ii) Total Utility:


Total Utility is the utility from all units of consumption. According to
Mayers—”Total Utility is the sum of the marginal utilities associated with the
consumption of the successive units.”

For example:
Suppose, a man consumes five breads at a time. He derives from first bread
20 units of satisfaction from 16, from third 12, from fourth 8 and from fifth 4
i.e., total 60 units.
This can be shown by the following table:

(iii) Average Utility:


Average Utility is that utility in which the total unit of consumption of goods
is divided by number of Total Units. The Quotient is known as Average
Utility. For example—If the Total Utility of 4 bread is 40, then the average
utility of 3 bread will be 12 if the Total Utility of 3 bread is 36

i.e. (36 ÷ 3 = 12).

The following table will explain the point clearly:

It is clear from the above table that by the increasing use of any article
Marginal and Average Utility reduces gradually and Total Utility increases
only up to that point where the Marginal Utility comes to zero.

Relation between Total Utility and Marginal Utility:


There is a close relationship between Total Utility and Marginal Utility. As
there is increase in the unit of a particular commodity, the Marginal Utility
goes on diminishing and Total Utility goes on increasing. Total Utility goes
on increasing up to that extent till the Marginal Utility becomes Zero. When
Marginal Utility is zero Total Utility is maximum.
After Zero Marginal Utility comes to negative and the result is that Total
Utility starts reducing relationship between Total Utility and Marginal
Utility can be started as follows:
(i) When Marginal Utility is reducing, the Total Utility will increase so long
Marginal Utility does not become zero.
(ii) When Marginal Utility becomes zero; Total Utility will be maximum.
(iii) After zero when Marginal Utility is negative then there is reduction in
Total Utility.

Relationship between Marginal Utility and Total Utility can be studied


from the following:

From the above table it is clear that up to fourth bread Marginal Utility is
positive and there is no regular increase in the Total Utility. And on fifth
bread the Marginal Utility is zero and on this point the increase in Total
Utility stops. This is point of safety. As Prof. Bounding has said that “Point
of full satisfaction and point of full safety is that point where consumption
increases but there is no increase in Total Utility.” If after fifth bread, extra
bread is consumed then there will be dis-utility and Marginal Utility will be
negative. Sixth and seventh bread shows dis-utility.
The relationship between Marginal Utility and Total Utility will be
shown by diagram as follows:

In both the diagrams OX line shows bread. In diagram No. 1 OY line shows
Marginal Utility and is diagram No. 2 OY line shows Total Utility. As the
number of bread increases Marginal Utility goes on diminishing and Total
Utility goes on increasing—To remember:

(1) Marginal Utility goes on diminishing with the consumption of every


additional unit of bread.
(2) Total Utility goes on increasing with the consumption of every additional
unit but at a diminishing rate.
(3) Marginal Utility is equal to the increase in the Total Utility. Total Utility
is the sum total of the Marginal Utilities derived from all the units consumed.
(4) When Marginal Utility becomes 0, total utility does not increase.
(5) When Marginal Utility becomes negative, Total Utility decreases.
(6) Increase in Total Utility depends on Marginal Utility.
(7) Since Marginal Utility diminishes, Total Utility increases at a diminishing
rate.
(8) When Marginal Utility is Zero, Total Utility is maximum.
(9) When Marginal Utility is negative, Total Utility declines.

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