Economics

• Utility

  • Utility: the satisfaction gained from the consumption of a product.
• • The Law of Diminishing Marginal Utility: the fall in marginal utility as consumption rises.
  • Assuming limited income, rational behaviour and a goal to maximise total utility.
• • Equi-Marginal Principle: Consumers maximise their utility where their marginal valuation for each product consumed is the same.
  • It can be used to draw up a demand curve. Price rises for product A; marginal utility will be less than other goods and reduce the buying of consumers of A compared to other products due to their goal of maximising total utility. Through it, we get to know the level of demand for consumers.
• • Customers can not always put wants in order of most satisfaction, as some products may carry the same level of satisfaction or may change depending on mood.
• • Customers may not always be able to assign a value to their satisfaction, as it is difficult to put intangible thoughts and feelings to numbers.
  • It also assumes rational behaviour from consumers, that they will be satisfied with more rather than less.
• total utility – the overall satisfaction that is derived from the consumption of all units of a good over a given time period
• marginal utility – the additional utility derived from the consumption of one more unit of a particular good