Q1: What is meant by utility?

Describe the determinants of

utility.
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Utility means the amount of satisfaction or happiness a person gets by consuming a good or
service. It is not a physical thing that can be seen or touched, but a feeling of pleasure or
satisfaction in the mind of the consumer. For example, when someone eats an apple, the
enjoyment or satisfaction they get from eating it is called utility. So, utility is subjective
because it depends on each person’s tastes and preferences.
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The first determinant of utility is the nature of the commodity. Some goods naturally give
more satisfaction compared to others. For example, food items give direct satisfaction when
eaten, while books give satisfaction in the form of knowledge. The type of good and its use
affects the amount of utility it provides to a person.
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The second determinant is the intensity of the consumer’s need. If a person is very hungry,
food will give them high utility, but if they are already full, the same food may provide little
or no satisfaction. This shows that utility depends on how badly a person needs a particular
good at that time. In the same way, water is very useful when someone is thirsty, but not so
useful when thirst is already satisfied.
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Other determinants of utility include time, place, and availability of substitutes. For
example, a fan has more utility in the summer than in the winter. A commodity also has more
utility when it is scarce rather than when it is easily available. Substitutes like tea and coffee
affect the utility too, because if one is available, the demand and satisfaction from the other
may decrease. Hence, utility changes with situation and conditions.
Q2: Define marginal utility and
total utility. Describe the interrelationship between marginal utility and total utility.
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Total Utility (TU) is the total amount of satisfaction a consumer gets from consuming a
certain quantity of a good. For example, if a person eats 3 mangoes and the satisfaction from
all three together is 60 units, then 60 is the total utility. It is the sum of utilities derived from
all units of the commodity consumed.
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Marginal Utility (MU) is the additional satisfaction obtained from consuming one more unit
of a commodity. For example, if eating the first mango gives 20 units of satisfaction, the
second mango gives 15, and the third gives 10, then the marginal utility of the second mango
is 15. MU tells us how much extra satisfaction is added by the last unit consumed.
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The relationship between TU and MU is very close. As long as marginal utility is positive,
total utility increases. When marginal utility starts to fall but remains positive, total utility
keeps increasing at a slower rate. When marginal utility becomes zero, total utility reaches its
maximum point. After this, if marginal utility becomes negative, total utility starts to decline.
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In short, TU is the result of the addition of MU from each unit. MU explains the rate at which
TU changes. This is why economists say, “TU is the sum of MU, and MU is the change in
TU.” Thus, MU and TU are interdependent and help in understanding consumer behavior.

Q3: Explain with the help of table and diagram that the total
utility is maximum when marginal utility is zero.
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This concept is explained with the help of a table. Suppose a consumer eats apples, and the
satisfaction gained is measured in utility units. The table below shows the relationship:

Units of Apple Total Utility (TU) Marginal Utility (MU)

1 20 20

2 38 18

3 54 16

4 68 14

5 80 12

6 90 10

7 96 6

8 100 4

9 100 0

10 98 -2

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From the table, it is clear that as more apples are consumed, TU increases but at a decreasing
rate because MU falls with each unit. At the 9th unit, MU becomes zero, and TU reaches its
maximum (100 units). After this, if consumption continues, MU becomes negative, and TU
decreases.
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This relationship can also be explained with a diagram. On the X-axis, we take the number of
apples (units consumed), and on the Y-axis, we take utility. The TU curve rises upward at first
and then becomes flat when TU is maximum. The MU curve slopes downward and cuts the
X-axis at the point where MU is zero. This point corresponds to the maximum TU.
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Thus, the table and diagram show that a rational consumer will stop consumption at the point
where TU is maximum and MU is zero. If they go beyond this point, MU becomes negative,
and TU falls, meaning dissatisfaction begins. This is why the condition of MU = 0 is
important for consumer satisfaction.

Q4: Describe the law of diminishing marginal utility. Also

describe its assumptions and exceptions as well as its practical
importance.
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The law of diminishing marginal utility states that when a consumer consumes more and
more units of a commodity continuously, the additional satisfaction (marginal utility) from
each new unit decreases. For example, the first glass of water to a thirsty person gives very
high utility, the second gives less, and after several glasses, the utility may even become zero
or negative.
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The law is based on some assumptions:
1. The units of the commodity are identical.
2. The consumption takes place continuously without much gap.
3. The consumer’s taste and income remain the same.
4. The units consumed must be small and measurable.
Under these conditions, the law of diminishing MU holds true.
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There are some exceptions to this law. For example, things like money, rare collections, or
hobbies (like stamps or art) may give increasing satisfaction instead of decreasing, because
people’s desire for them is endless. Also, in case of drugs or intoxicants, more use may seem
to give more satisfaction, though in the long run it is harmful.
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This law has great practical importance. It forms the basis of the law of demand, as people
buy more when the price falls (because MU falls with more consumption). It also justifies
progressive taxation, as the utility of money decreases with more income, so the rich can be
taxed more. It also helps in explaining consumer equilibrium and resource distribution in
economics.
Q5: Describe the law of equi-marginal utility and its practical
importance too.
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The law of equi-marginal utility is also known as the law of substitution. It states that a
consumer will spend their limited income on different goods in such a way that the marginal
utility of the last rupee spent on each good is equal. In this way, the consumer gets maximum
satisfaction from their given income.
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For example, suppose a person has 10 rupees and can spend it on apples and oranges. They
will spend some money on apples and some on oranges until the utility gained from the last
rupee spent on apples is equal to the utility gained from the last rupee spent on oranges. If
this condition is not met, the consumer will re-adjust their spending.
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The importance of this law is that it guides consumers in making rational choices. It tells
them how to distribute their income across different goods and services. It also explains how
demand for goods is created and how people substitute one good for another when the
marginal utility changes.
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In practical life, this law is used in business, taxation, and resource allocation. Governments
also use this principle for distributing resources among different sectors so that maximum
benefit is achieved. Thus, the law of equi-marginal utility is very useful for consumers,
producers, and governments.

Q6: Explain Consumer Equilibrium with the help of equation

given below.
Consumer equilibrium = MU of good A / Price of good A = MU of good B / Price of good B
= … = MU of good Z / Price of good Z
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Consumer equilibrium means the situation where a consumer gets maximum satisfaction
from spending their limited income and has no reason to change their spending pattern. At
this point, the consumer has adjusted their purchases in the best possible way and cannot
increase satisfaction by shifting money from one good to another.
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According to the law of equi-marginal utility, this condition is reached when the ratio of
marginal utility to the price of each good is equal. In other words, the last rupee spent on each
good should give the same amount of satisfaction. Mathematically, this is written as:

where MU is marginal utility and P is the price of each good.

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For example, if a person spends on tea and coffee, and the MU per rupee of tea is higher than
that of coffee, then the person will spend more on tea and less on coffee until both ratios
become equal. When they become equal, the consumer is in equilibrium and gets the
maximum possible satisfaction from their income.
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This concept is very important because it explains consumer behavior in the market. It shows
how consumers balance their choices and how prices and preferences influence demand. It
also provides a foundation for the theory of demand and resource allocation in economics.

DIAGRAM
  Query successful
This diagram illustrates how a consumer maximizes their total utility (satisfaction) by
allocating their money between two goods: flour and ghee. The core idea is that a rational
consumer will continue to adjust their spending until the marginal utility per dollar spent on
each good is equal.
Explanation of the Diagram
 Axes: The horizontal axis (OX) represents the units of money spent, and the vertical
axis (OY) represents the marginal utility derived from each good.
 Marginal Utility Curves: The downward-sloping lines represent the law of
diminishing marginal utility. This law states that as a consumer acquires more units
of a good, the additional satisfaction (marginal utility) from each extra unit decreases.
o ABC is the marginal utility curve for flour.

o DEF is the marginal utility curve for ghee.

 Initial Arrangement: In the initial arrangement, the consumer spends 3 units of

money (OH) on flour and 2 units of money (OJ) on ghee. At this point, the marginal
utility of both goods is 6. This is the point where marginal utility of flour (GH) is
equal to the marginal utility of ghee (IJ), meaning the consumer is getting the same
 satisfaction from the last dollar spent on each good. Total utility is maximized at this
point.
 Change in Arrangement: The diagram then shows what happens when the consumer
changes their spending to 4 units of money on flour and 1 unit on ghee. The
consumer's new marginal utility for flour is EJ, while their new marginal utility for
ghee is GH.
 Result: The diagram shows that EJ > GH. This means that the marginal utility from
the last dollar spent on flour is now greater than the marginal utility from the last
dollar spent on ghee. By reallocating their money this way, the consumer has not
maximized their total utility. They should shift back to the initial arrangement (3 on
flour and 2 on ghee) to gain more overall satisfaction.