utility

P R E S E N T E D B Y: C Z A R E N N E F AY E E . B A G A O I S A N
 UTILITY
 L AW O F D I M I N I S H I N G M A R G I N A L
UTILITY
 CONSUMPTION
 DISPOSABLE INCOME
 M A R G I N A L P R O P E N S I T Y TO
CONSUME
 M A R G I N A L P R O P E N S I T Y TO S AV E
 UTILITY

The satisfaction derived from the

acquisition or consumption of a
particular good is called UTILITY.
 LAW OF DIMINISHING MARGINAL
UTILITY
According to this law, as an individual
consumes more and more units of a
specific good or service, the additional
satisfaction or utility gained from each
EXAMPLE:
1. Chocolate 2. Water
Consumption Consumption
1 Calculating Marginal Utility
Number of chocolates Total Utility  Marginal Utility 

1 10 10

2 25 15 (25-10)

3 38 13 (38-25)

4 50 12 (50-38)

5 59 9 (59-50)

6 62 3 (62-59)
2 Law of Diminishing Marginal Utility
Number of Units Consumed Total Utility  Marginal Utility 

1st 20 20

2nd 32 12 (32-20)

3rd 40 8 (40-32)

4th 42 2 (42-40)

5th 42 0 (42-42)

6th 39 -3 (39-42)
 CONSUMPTION
CONSUMPTION decisions depend on many factors
but the main one is DISPOSABLE INCOME, which
is the amount of income consumers have after
paying taxes to the government. When personal
disposable income goes up, consumers buy more.
 DISPOSABLE INCOME

DISPOSABLE INCOME represents the amount of

money available to individuals or households after
deducting taxes and other mandatory expenses.
MARGINAL PROPENSITY TO CONSUME (MPC)

A.K.A. MARGINAL PROPENSITY TO

SPEND
It describes how much of each additional peso in
personal disposable income that the consumer will
spend.
 MARGINAL PROPENSITY TO SAVE (MPS)
It is the percentage of additional income that is saved. Since
consumers can either spend or save money.

MPC + MPS = 100%

Where:
MPC = ∆ in Consumption ÷ ∆ in Disposable Income
MPS = ∆ in Savings ÷ ∆ in Disposable Income
 EXAMPLE:
Suppose the government of the Philippines implements a tax cut policy that
leads to an increase in disposable income for individuals. Let's say the tax cut
results in an additional income of 10,000 pesos for a particular individual.

Now, let's assume that the individual decides to spend 7,000 pesos out of the
additional income on goods and services. The remaining 3,000 pesos is saved.
To calculate the MPC (Marginal Propensity to Consume), we need to determine
the change in consumption (∆C) and the change in disposable income (∆Y).

∆C = 7,000 pesos (additional spending on goods and services)

∆Y = 10,000 pesos (additional disposable income)

MPC = ∆C ÷ ∆Y (change in consumption divided by change in disposable

income)
MPC = 7,000 pesos ÷ 10,000 pesos
MPC = 0.7
To calculate the MPS (Marginal Propensity to Save), we need to determine the
change in savings (∆S) and the change in disposable income (∆Y).

∆S = 3,000 pesos (additional savings)

∆Y = 10,000 pesos (additional disposable income)

MPS = ∆S ÷ ∆Y (change in savings divided by change in disposable income)

MPS = 3,000 pesos ÷ 10,000 pesos
MPS = 0.3
Now, if we add the MPC and MPS together, we get:

MPC + MPS =

0.7 + 0.3 = 1
Thank you for listening!