# Utility Microeconomics Homework Help

### Description of Utility

It is the fundamental law of utility analysis.

The additional benefit which a person derives from a given increase in the stock of a thing diminishes with every increase in the stock that he already has as stated by Alfred Marshall.

Keywords: Utility, Cardinal, and ordinal approaches, Total and marginal utility, Assumptions of the law, Exceptions to the law, The paradox of value.

Utility

It is the power of a commodity or service to satisfy a want or a desire.The utility is the level of happiness or satisfaction which a consumer gets when he consumes a product. It is a subjective concept.

Cardinal and ordinal approaches:

Cardinal Approach says the utility is measurable or quantifiable indefinite numbers. The unit of measurement is utils. An example is Diminishing Marginal Utility.

Ordinal approach says the utility is a psychological phenomenon and hence cannot be measured. It can be only ranked or ordered according to preference. An example is Indifference curve analysis.

Total and marginal utility:

Total utility is the total level of satisfaction derived from consuming the good.

Marginal utility is the additional satisfaction that is received when an additional unit of a good is consumed.

Assumptions of the law:

The utility can be measured in cardinal numbers. Every unit of the commodity consumed should be homogeneous or identical in all respects. There is a continuous consumption of the commodity. An example is a cup of tea in the morning and another in the evening may not be subject to the law of DMU.

Marginal utility declines as more of a particular good is consumed in a given time period, ceteris paribus. Even though marginal utility declines, the total utility still increases as long as marginal utility is positive. The total utility will decline only if marginal utility is negative.

Exceptions to the law:

Rare and curious things: They include the collection of more and more units of such things such as old coins, rare paintings, stamps etc gives more and more satisfaction to the collector.

Drunkards: A drunkard is said to obtain increasing utility from each additional peg of wine.