(A) Law of Marginal Utility: The law of
marginal utility was stated and developed by Menger, Marshall and
others. It is the first and simplest attempt to analyze consumer
behavior and to determine equilibrium: the most satisfying condition for
a consumer where he can maximize his utility considering the
limitations of price and income. The law suggests that
the utility that a person gains from several units of the same good goes
on falling because utility is subjective. The law is based on the satiability characteristic of wants. This is called the Diminishing Marginal Utility (DMU) principle. Marshall has stated the DMU as follows:
1) As the stock of commodity that a person already possesses,
2) increases,
3) the additional benefit that a person receives,
4) will increase but not as fast as the stock itself.
The four important parts of the principle of DMU as
stated above have been presented in four separate lines. The
implication of the DMU principle will be clear with the help of a
numerical example. The example helps to bring out the basic principle
underlying the law.
Four columns need to be drawn which should include the following information:
I. Total stock or number of units offered to and consumed by a person,
II. Every unit brings some utility which is progressively added to make up for Total
utility,
III. Marginal or additional utility as the
difference between Total utility of two succeeding units; such as 35 -
20 = 15, 44 - 35 = 9 etc. [Refer to the table below.]
IV. Finally in the last column, an evaluation of marginal utility in money units assuming that one unit of utility equals two cents.
I
|
II
|
III
|
IV
|
Stock or Units
|
Total Utility
|
Marginal Utility
|
Money value u =2c
|
1
|
20
|
20
|
40
|
2
|
35
|
15
|
30
|
3
|
44
|
9
|
8
|
4
|
48
|
4
|
8
|
5
|
49
|
1
|
2
|
The columns in the table correspond with the four
lines of the statement of the law. The first column shows progressive
increase in the stock or units of the good as 1, 2, 3...etc. The second
column shows how the total utility or satisfaction that a consumer
derives behaves with every increase in the stock. The total utility has
been continuously or absolutely increasing as 20, 35, 44…etc. The
third column shows the difference in the utilities of two successive
units. This is the additional benefit or marginal utility. One would notice that marginal utility falls progressively (20, 15, 9...etc.) as the stock increases. This is the diminishing marginal utility tendency.
It is also known as a relative fall in utility. This kind of a
reduction is due to the progressive satisfaction of wants. As the
utility of the good increases, the succeeding units are less intensely
and less urgently needed by the consumer. Finally, in the fourth column
marginal utility has been converted in money units with the conversion
rule 1u = 2c.
Tidak ada komentar:
Posting Komentar
Terima Kasih