Intermediate Microeconomics 1

Lecture Notes-3

Ideas integral to consumer theory that are associated with the notion of marginal utility and need
to be comprehended. Some examples of this are as follows:
The term "total utility" refers to the overall amount of pleasure or utility that a customer obtains
from consuming a specific quantity of an item. In other words, total utility measures how much
satisfaction or benefit a consumer receives from eating a thing. When calculating total utility, the
marginal utilities of each unit used are added together and then added to the total utility.
The term "utility maximization" relates to the concept that customers want to get the most out of
their money while also maximizing the amount of benefit they receive overall. In other words,
consumers attempt to consume the quantity of products that, given their income and the pricing
of commodities, will offer them the maximum degree of happiness while also minimizing the
amount of money spent on those items.
The rate at which a consumer is prepared to swap one product for another while still retaining the
same level of pleasure is referred to as the marginal rate of substitution, or MRS for short. In
order to determine the MRS, the absolute value of the slope of the indifference curve is used in
the calculation.
Indifference Curves: Indifference curves are graphical representations of the many combinations
of two commodities that offer a buyer with the same amount of satisfaction or utility.
Indifference curves may be found in marketing and economics. The demand curve may be
derived from the indifference curve, which is then used to examine the preferences of consumers.
The varied combinations of items that a customer may afford to acquire given their income and
the pricing of commodities are referred to as the consumer's budget limitations. Consumer
decisions may be analyzed using budget restrictions, which can then be used to create the
demand curve.
Engel Curves An Engel curve illustrates the connection between the amount of a product
purchased by a customer and the percentage of their income that goes toward purchasing that
product. When studying the relationship between income and demand, Engel curves are a useful
tool.
Giffen Goods: Giffen goods are uncommon items in which the quantity sought grows as the
price of the good increases. This phenomenon is known as the "Gifen effect." This goes against
the demand rule and happens when the income and substitution impacts of a change in price
operate in opposing directions.
It is very necessary to have a grasp of these subtopics and concepts in order to comprehend how
marginal utility is utilized in consumer theory and how it influences consumer behaviour.
The term "total utility" originates from the field of consumer theory and describes the overall
level of contentment or joy attained by an individual as a result of eating a certain amount of a
particular product. In consumer theory, the idea of total utility is significant because it enables us
to have a better understanding of how much 2 pleasure a consumer receives from the
consumption of a specific quantity of an item and how that level of satisfaction varies according
to the quantity of the good that is eaten.

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It is imperative that the idea of marginal utility be grasped first if one is to have any hope of
comprehending the concept of total utility. The term "marginal utility" refers to the additional
benefit or pleasure that a customer receives by consuming one additional unit of an item. This
can be in the form of either increased utility or increased satisfaction. According to the theory
known as the law of decreasing marginal utility, the marginal utility of a product or service
diminishes as the amount of that product or service that a customer consumes increases. This
indicates that the initial few units of an item will offer the customer with the highest level of
satisfaction, while each succeeding unit of the good will deliver a level of satisfaction that is
slightly lower than the previous unit.
We are able to compute the overall utility that a customer receives from eating a specific quantity
of an item by utilizing the idea of marginal utility. This allows us to determine how much benefit
a consumer receives from consuming the good. Simply adding up the marginal utilities of each
unit consumed will provide us the desired result. For illustration's sake, let's imagine that the
consumption of four units of a good results in a consumer deriving the marginal utilities shown
below:
The initial unit has a marginal usefulness of ten units for each additional unit.
The second unit contributes an additional 8 units of marginal usefulness.
There are a total of six units of marginal value provided by the third unit.
The fourth unit contributes a total of four additional units of marginal usefulness.
Add the marginal utilities of each unit to arrive at the total marginal utility that the consumer
receives from eating four units of the product. This will allow us to determine the total utility that
the customer receives from consuming four units of the commodity.
The total benefit equals 10 plus 8 plus 6 plus 4 = 28
According to this illustration, the purchaser obtains a total of 28 units of utility from the use of
four units of the product.
It is essential to keep in mind that the idea of total utility is not identical to the idea of average
utility. The term "average utility" describes the amount of utility that a consumer receives from a
good for each unit of that commodity that is consumed. To determine the average utility, just
divide the total utility by the total number of units that were utilized in the calculation. In the
previous illustration, the following would be the average utility that would result from eating
four units of the good:
The average utility is calculated by dividing the total utility by the number of units used, which
in this case is four.
Therefore, in this illustration, the consumer receives, on average, seven units of utility for each
unit of the commodity that is used.
The idea of total utility is significant in consumer theory because it helps us understand how
variations in the quantity of a commodity that is consumed may impact the level of satisfaction
that a consumer obtains from a particular good. [C]onsumer theory attempts to explain why
certain goods are purchased and consumed by individuals. The marginal utility of a thing reduces
when a consumer consumes more of that item, which indicates that the total utility that a
consumer obtains from that good will likewise drop as a result of the increased consumption of
that good. This is significant because it explains why customers ultimately reach a point of
satiation known as the "3 point," at which they are no longer ready to consume more of a
commodity, despite the fact that the price of the good has decreased.