Ch:1 Consumers Behaviour Flashcards
Define utility
The power or ability of a good or service to satisfy human want is called
utility. For example, water has the power to satisfy thirst, bread has the power to
satisfy hunger, bulb gives light, pen is to write with etc.
Differentiate between utility and usefulness.
Utility does not mean usefulness
because many goods are not useful e.g, wine, opium, cigarette, heroin etc. These
goods are injurious to human health but they have utility because they satisfy
human wants. Wine has utility for drunkard because he can not help drinking. So,
we can say that utility and usefulness are like two poles which stand for away
from each other.
What is meant by marginal utility?
Utility of the last unit of a commodity consumed or utility of
an additional unit consumed is called marginal utility. Separate utility of every
unit is also called marginal utility.
What is meant by total utility?
Utility which is attained from the use of a specific number of the units of a commodity is called total utility.
Total utility is equal to the sum of separate utility which is attained form every unit.
For example, if a man eats two mangoes while the utility of the first mango is 6 and 4 of the second. Total utility
will be 6+4=10.
State the relationship between total utility and marginal utility.
Total utility and
marginal utility has the following relationship:-
1-As long as marginal utility is positive, total utility increases.
2-When marginal utility is zero, total utility is maximum.
3-When marginal utility is negative, total utility decreases.
Define law of diminishing marginal utility.
Prof Marshall defined
law of diminishing marginal utility in the following words:
The additional benefit which a person derives from an increase of his stock
good diminishes with every increase in the stock that he already has.
Prof Chapman:
The more quantity of a good you have, less desirable you will be for an increase in it
Define law of equi marginal utility.
Total utility from a given amount is
maximum when it is spent on various goods in such a way that marginal utility of all goods becomes equal.
What is meant by consumer’s behaviour?
The behaviour of the people with regard to selection, purchase and consumption of goods and services for satisfaction of their wants is
called consumer’s behaviour.
What is meant by initial utility?
Utility of the first unit of a commodity consumed is known as
initial utility.
What is meant by positive utility?
As long as total utility keeps on increasing and marginal utility is not zero, then utility is positive.
What is point of satiety? or what is meant by zero utility.
When desire of a good is fully satisfied and consumer has no desire to consume further unit, then utility is zero. This will be consumers’ point of satiety.
What is meant by negative utility?
When utility of a commodity is zero but consumer consumes further units of it, then utility becomes negative. Total utility decreases in case of
negative utility.
Write consumer’s equilibrium in the form of an equation.
Following is consumers equilibrium in the form of an equation:
Consumer’s equilibrium =
MUA/PA=MUB/PB=…..MUN/PN
Here MU is marginal utility.
A, B,….N are different commodities.
P is price while PA is price of A commodity.
Write four assumptions of law of diminishing marginal utility.
Following are four assumptions of law of diminishing marginal utility:
1-Unit should be a suitable quantity..
2-Consumption should be continuous.
3-All the units of the commodity should be of same nature.
4-income of the consumer should not change
5-mental condition of the consumer should not change.
Write three points of importance of law of diminishing marginal utility.
Following are three points of importance of law of diminishing marginal utility:
1-This law guides the consumer for buying goods.
2-It provides a base of the law of demand.
3-It guides finance minister for taxation.
