Table1.1: Showing Diminishing Marginal Utility Figure 1.1 illustrates the total utility and the marginal utility curves. The total utility curve drawn in Figure 1.1 is based upon three assumptions. First, as the quantity consumed per period by a consumer increases his total utility increases but at a decreasing rate. This implies that as the consumption per period of a commodity by the consumer increases, marginal utility diminishes as shown in the lower panel of Figure 1.1. Secondly, as will be observed from the figure when the rate of consumption of a commodity per period increases to Q 4 , the total utility of the consumer reaches its maximum level.
Therefore, the quantity Q 4 of the commodity is called satiation quantity or satiety point. Thirdly, the increase in the quantity consumed of the good per period by the consumer beyond the satiation point has an adverse effect on his total utility that is, his total utility declines if more than Q 4 quantity of the good is consumed. This means beyond Q 4 marginal utility of the commodity for the consumer becomes negative ads will be seen from the lower panel of Figure 7.1 beyond the satiation point Q 4 marginal utility curve MU goes below the X-axis indicating it becomes negative beyond quantity Q 4 per period of the commodity consumed. It is important to understand how we have drawn the marginal utility curve. As stated above marginal utility is the increase in total utility of the consumer caused by the consumption of an additional unit of the commodity per period. We can directly find out the marginal utility of the successive units of the commodity consumed by measuring the additional utility which a consumer obtains from successive units of the commodity and plotting them against their respective quantities. However, in terms of calculus, marginal utility of a commodity X is the slope of the total utility function U = f(Q x ). Thus, we can derive the marginal utility curve by measuring the slope at various points of the total utility curve TU in the upper panel of Figure7.1 by drawing tangents at them. For instance, at the quantity Q 1 marginal utility (i.e. dU/ dQ = MU 1 ) is found out by drawing tangent at point A and measuring its slope which is then plotted against quantity in the lower panel of Figure 1.1. In the lower panel we measure marginal utility of the commodity on the Y-axis. Likewise, at quantity Q 2 marginal utility of the commodity has been obtained by measuring slope of the total utility curve TU at point B and plotting it in the lower panel against the quantity Q 2 . It will be seen from the figure that at Q 4 of the commodity consumed, the total utility reaches at the maximum level T. Therefore, at quantity Q 4 the slope of the total utility curve is zero at this point. Beyond the quantity Q 4 the total utility declines and marginal utility becomes negative.
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- Fall '19