Total Utility and Marginal Utility

Relationship between Total Utility and Marginal Utility

There is a definite and well defined relationship between total utility and marginal utility.

Total Utility

It refers to the total satisfaction derived by the consumer from the consumption of a specific quantity of a commodity.

For example, the total utility of consuming two apples is the total satisfaction that these two apples provide.

Marginal Utility

It refers to the additional utility derived from the consumption of an additional unit of a commodity.

The relation between total utility and marginal utility is shown in below graph.

Graph ‘A’ shows that the total utility increases first,  reaches the maximum and then starts decreasing

Graph ‘B’ shows continuously decreasing marginal utility curve

marginal utility

Let us analyze the graph deeply

Movement Along demand curve and shift of demand curve

1) Change in Quantity demanded

When the amount demanded of a commodity changes (rises/falls) as a result of change in its own price, while other determinants of demand (like income, tastes and preferences etc.) remain constant, it is known as change in quantity demanded.
They are of two types:

a) Extension of demand :
When the quantity demanded of a commodity rises due to fall in its price, other things remaining the same (i.e. factors that affects demand like income,tastes and preferences etc), it is called ‘rise in quantity demanded’ or ‘extension of demand’.

b) Contraction of demand :
When the quantity demanded of a commodity falls due to rise in its price, other things remaining the same (i.e. factors that affects demand like income,tastes and preferences etc), it is called ‘fall in quantity demanded’ or ‘contraction of demand’.

demand curve

As explained in the above graph,when the price is OP, quantity demanded is OQ.

When the price rises to OP₁, quantity demanded falls to OQ₁.
This movement from A to B in upward direction on the demand curve DD is the contraction of demand,since quantity demand falls (contracts) due to rise in price.

Exception to law of Demand

Exception to the law of Demand / when demand curve slopes upward / a positive slope demand curve

Law of demand may not operate in many situations.

These are known as the exception to the law of demand, where demand curve may not have negative slope.

A positively sloped demand curve shows with rise in price, quantity demanded rises and with fall quantity demanded falls.

Discussed below are the various exceptions.

1) Giffen Goods:

Named after economist Sir Robert Giffen, he said giffen goods are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price.
for example - maize and jowar are considered to be inferior food grains for average consumers.

As the price of maize falls, real income rises, know the consumer may afford to purchase superior foods like wheat or rice.

Since there is a limit to intake of food, quantity demanded for maize would be lower.

Similarly, if the price of maize rises, poor consumers will be forced to spend more on the purchase of maize because it is essential for their survival.

They cannot afford to purchase the same quantity of superior food items that they purchased earlier because they would be left with lesser money to spend on other commodities.

Thus, they will increase the demand for maize at the cost of wheat or rice.

Law of Demand

The law of demand states that other thing remaining equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.

The law indicates an inverse relationship between the price and quantity demanded of a commodity.

The law of demand is based on the following main assumptions:

1) There should be no change in income of the consumer.

2) There should be no change in tastes and preferences of the consumers.

3) Prices of the related commodities should remain unchanged.

4) Size of the population should not change.

5) The distribution of income should not change.

6) The commodity should be a normal commodity.

Explanation of law of demand/Why demand curve slope downwards to the right/why demand curve has a negative slope

1) Law of diminishing marginal utility : 

This law states that as consumption of a commodity increases, the utility from each successive unit goes on diminishing. So for every additional unit to be purchase the consumer is willing to pay less and less price.
Thus more is purchase only when own price of the commodity falls.

Explanation through example:

Units of shirt	Marginal utility
1 2 3 4 5	700 650 600 500 350

Demand Schedule

Demand Schedule:
It is a tabular statement that shows different quantities of a commodity that would be demanded at different prices.  It is of two types: 

1) Individual Demand schedule :
It shows various quantities of a commodity that would be purchased at different prices during a given period.

Individual Demand schedule for apples

Price(Rs. Per kg)	Quantity demanded (kg/week)
40 30 20 10	1 2 4 6

2) Market Demand schedule :

It shows various quantities of a commodity that would be purchased at different prices by all the buyers during a given period.

Market Demand Schedule for For Apples

Price(Rs./kg)	Quantity demanded by ‘A’(Kg per week)	Quantity demanded by ‘B’(Kg per week)	Total market Demand (Kg per week) (A+B)
40 30 20 10	1 2 4 6	2 3 5 7	1+2=3 2+3=5 4+5=9 6+7=13

Demand Curve

The picturization of demand schedule is ‘Demand curve’. It   is a graphic presentation of the law of demand. It is of two types:

1) Individual Demand Curve : 
A curve that shows different quantities of the goods which a consumer is willing to buy at different prices during a given period of time. Below shown is individiual demand curve.

demand curve

In the above figure DD is the Demand Curve. The demand curve slopes downwards from 
left to right, indicating an inverse relationship between price and the quantity demanded.