Relationship between TU and MU?
TU (Total utility),Mu (marginal utility).
Relationship:-
1.when Mu is positive then tu Increasing continously.
2.Tu is Maximum when Mu is Zero.
3.Tu start decreasing when Mu is negative.
4.Tu is Summation of Mu.
Relationship between TU and MU?
The relationship between Total Utility (TU) and Marginal Utility (MU) is an important concept in the field of economics, specifically in the study of consumer behavior and utility theory. Understanding this relationship helps explain how individuals make decisions regarding their consumption patterns and the satisfaction they derive from consuming goods and services.
Definition of TU and MU:
- Total Utility (TU): Total Utility refers to the overall satisfaction or utility that an individual derives from consuming a certain quantity of a good or service.
- Marginal Utility (MU): Marginal Utility refers to the additional utility or satisfaction an individual obtains from consuming one additional unit of a good or service.
The Law of Diminishing Marginal Utility:
The Law of Diminishing Marginal Utility states that as an individual consumes more and more units of a particular good or service, the additional satisfaction or utility derived from each additional unit will start to diminish.
Relationship between TU and MU:
- TU and MU are interrelated: Total Utility and Marginal Utility are interrelated concepts that help explain an individual's consumption behavior. The level of total utility is determined by the cumulative sum of the marginal utilities derived from each unit consumed.
Graphical Representation:
- TU and MU on a graph: In a graphical representation, the relationship between TU and MU is shown by plotting the TU and MU on the y-axis and the quantity of the good or service consumed on the x-axis. Initially, both TU and MU increase as more units are consumed, but the rate of increase of TU starts to decline as the MU diminishes.
Optimal Consumption:
- Equilibrium point: To maximize their satisfaction or utility, individuals tend to consume goods and services until the marginal utility derived from the last unit consumed is equal to the price they have to pay for that unit. This is known as the equilibrium point.
- Allocating resources efficiently: Understanding the relationship between TU and MU helps individuals and policymakers allocate their resources efficiently by considering the marginal utility gained from each additional unit consumed.
Implications for Decision Making:
- Rational decision-making: The relationship between TU and MU plays a crucial role in rational decision-making. Individuals aim to maximize their total utility by consuming goods and services up to the point where the MU equals the price they are willing to pay.
- Purchase decisions: When faced with different choices, individuals compare the marginal utilities of each option to determine which one will provide the highest level of satisfaction and utility.
In conclusion, the relationship between Total Utility (TU) and Marginal Utility (MU) is a fundamental concept in economics. The Law of Diminishing Marginal Utility explains how the additional satisfaction derived from consuming each additional unit of a good or service starts to diminish. Understanding this relationship helps individuals make rational decisions regarding their consumption patterns and maximize their overall satisfaction or utility.
To make sure you are not studying endlessly, EduRev has designed Commerce study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in Commerce.