Consumers Equilibrium and Demand Test - 11

MU & TU relationship:

• MU is the rate of change of TU.
• When the MU decreases, TU increases at decreasing rate.
• When MU becomes zero, TU is maximum. It is a saturation point.
• When MU becomes negative, TU declines.

Law of diminishing marginal utility states that the more a consumer consumes of a product the less is the utility he derives from the additional consumption.

According to Marshall, The law of diminishing marginal utility states that as a person consumes more and more units of a commodity, the utility or satisfaction derived from each additional unit decreases. This law applies to all commodities except money.

A movement along a given indifference curve represents a change in the quantity consumed of one good while keeping utility constant. This movement occurs in response to a change in the price of one of the goods while the prices of other goods and income remain constant. It reflects the substitution effect, wherein the consumer adjusts their consumption of goods in response to changes in relative prices to maintain the same level of satisfaction.

The total satisfaction or happiness a consumer derives from consuming a combination of goods and services. Total utility is the overall satisfaction or happiness that a consumer derives from consuming a combination of goods and services. It represents the sum of the marginal utilities of individual goods consumed.

In consumer theory, utility is a concept that represents the satisfaction or happiness that consumers derive from consuming goods and services. It is a key concept in understanding consumer choice.

Elasticity of demand is used in economics to measure how sensitive the quantity demanded of a good is to changes in its price. It helps analyze consumer responsiveness to price changes.

In order to increase the consumption of one good, other good must be sacrificed as utility level through out the indifference cure has to be same. Due to inverse relation between two goods indifference curve slopes downwards to the right.

When total utility increases, marginal utility is positive (indicating that additional units are providing additional satisfaction) and declining (indicating that the additional satisfaction from each additional unit is decreasing).

Law of Demand: The amount of a good that a consumer would optimally choose is likely to increase when the price of the good falls and it is likely to decrease with a rise in the price of the good. This means the price rises, the demand falls.