HIMACHAL PRADESH NATIONAL LAW UNIVERSITY, SHIMLA

SUBJECT: ECONOMICS

TOPIC: MARGINAL UTILITY, CONSUMER EQUILIBRIUM

THROUGH UTILITY ANALYSIS

SUBMITTED TO: SUBMITTED BY:

Dr. Hari Chand Vihaan Acharya

1st Semester, B.A. LLB. (Hons.)

No. – 1020212269
. . . . . . . . . . . . . . . . WHAT IS MARGINAL UTILITY? . . . . . . . . . . . . . . . .

In economics, utility is that the satisfaction or benefit derived by consuming a product; thus
the marginal utility of a product or service describes what amount of pleasure or satisfaction
is gained from a rise in consumption. it may be positive, negative, or zero. as an example,
purchasing over one needs brings little satisfaction because the purchaser feels it's wasted
money, hence zero marginal utility. If one is truly harmed by extra consumption then it's
negative, and if some satisfaction is gained by extra consumption then it's positive. In other
words, a negative marginal utility suggests that every additional unit of a product consumed
provides more harm than benefits and results in a lower level of overall utility, whereas a
positive marginal utility suggests each additional unit consumed provides more benefit and
results in a better level of overall utility.

In the context of cardinal utility, economists postulate a law of diminishing marginal utility,
which describes how the primary unit of consumption of a specific good or service yields
more utility than the second and subsequent units, with a seamless reduction for greater
amounts. Therefore, the decrease in marginal utility as consumption increases is understood
as diminishing marginal utility. This idea is employed by economists to work out what
proportion of a product a consumer is willing to buy.

LAW OF DIMINISHING MARGINAL UTILITY: The British economist Alfred Marshall

believed that the more something you've got, the less of it you want. This phenomenon is
observed as diminishing marginal utility by economists. Diminishing marginal utility refers
to the phenomenon that every additional unit of gain results in an ever-smaller increase in
subjective value. as an example, three bites of candy are better than two bites, but the 20th
bite doesn't add much to the experience beyond the nineteenth (and could even make it
worse). This effect is so well established that it's mentioned as the "law of diminishing
marginal utility" in economics, and is reflected within the convexity of most subjective utility
functions. This refers to the rise in utility a private individual gains from increasing their
consumption of a specific good. "The law of diminishing marginal utility is at the center of
the reason of various economic phenomena, including time preference and therefore the value
of products ... The law says, first, that the marginal utility of every homogenous unit
decreases as the supply of units increases (and vice versa); second, that the marginal utility of
a larger-sized unit is more than the utility of a smaller-sized unit (and vice versa). the primary
law denotes the law of diminishing marginal utility; the second law denotes the law of
accelerating total utility."
In modern economics, choice under conditions of certainty at one point in time is modelled
via ordinal utility, during which the numbers assigned to the utility of a specific circumstance
of the individual haven't any meaning by themselves, but which of two alternative
circumstances has higher utility is meaningful. With the ordinal utility, an individual's
preferences haven't any unique utility, and thus whether or not the utility is diminishing isn't
meaningful. In contrast, the concept of diminishing utility is meaningful within the context of
cardinal utility, which in modern economics is employed in analyzing intertemporal choice,
choice under uncertainty, and welfare.

The law of diminishing utility is that subjective value changes most dynamically near the
zero points and quickly levels off as gains (or losses) accumulate. And it's reflected within
the concavity of most subjective utility functions.

Given a concave relationship between objective gains and subjective value, each one-unit
gain produces a relatively smaller increase in subjective value in comparison with the
previous gain of an equal unit. The utility, or the change in subjective value above the
prevailing level, diminishes as gains increase.

As the rate of commodity acquisition increases, the utility decreases. If commodity

consumption continues to rise, utility at some point may fall to zero, reaching maximum total
utility. Further increase within the consumption of commodities causes the utility to become
negative; this signifies dissatisfaction. For instance , beyond some point, further doses of
antibiotics would kill no pathogens in the least and might even become harmful to the body.
Diminishing utility is traditionally a microeconomic concept and sometimes holds for a
private , although the utility of an honest or service could be increasing also . for instance ,
dosages of antibiotics, where having too few pills would go away bacteria with greater
resistance, but a full supply could effect a cure.

As suggested elsewhere during this article, occasionally, one may encounter a situation where
utility increases even at a macroeconomic level. for instance , providing a service may only
be viable if it's accessible to most or all of the population. The utility of a staple required to
supply such a service will increase at the "tipping point" at which this happens. This is often
almost like the position with huge items like aircraft carriers: the numbers of those items
involved are so small that utility is not any longer a helpful concept, as there's merely an easy
'acceptance' or 'refusal' decision.