The indifference curve is a simple curve that shows the different combinations of two goods. Each of the combinations will offer the sale satisfaction level to the consumer. Movement along a demand curve occurs when changes in quantity sought are connected with variations in commodity price. When the consumer buys apples he re­ceives them in units, 1, 2, 3, 4 etc., as shown in Table 1. TU increases with an increase in the consumption of a commodity and as long as MU is positive.

It is the total utility derived from the consumption of all units of a commodity. According to classical economics, utility can be measured similarly to how one would measure one’s height or weight. According to economists, the utility can be quantified in cardinal terms. It is possible to quantify the utility that an individual obtains through the consumption of commodities and services. However, there was no standardised method of calculating utility; so the economists came up with a hypothetical unit of measurement called Util. The MU curve is represented by the increment in total utility shown as the shaded block for each unit in the figure.

Important Study Materials for Class 12 Micro Economics

It is possible that there can be a parallel shift in the budget line. The change happens because of the change in the consumer's income and a change in the goods' prices. When there is a rise in consumer income, it shifts the budget line towards the right. When there is a drop in the consumer's income, it shifts the budget line to the left. If there is a change in the price of one of the goods, this causes the budget line to rotate. The fall in the price causes outward radiation, which happens because there is a rise in the purchasing power of money.

Chapter 4: Elasticity of Demand

The Cardinal Utility Approach employs the concept of “Utility” to determine the level of satisfaction. All those goods and services which have the capacity to satisfy human wants are said to contain utility in the viewpoint of economics. Consumer equilibrium is achieved when a consumer allocates their budget in a way that maximises their total utility, meaning they get the most satisfaction from their spending. The preferences of the consumer are known as monotonic preferences. This is where one bundle has more than the other of one good and not less of the other good in between two bundles. In the diagram, where the IC curve is tangent to the budget line, that is point E is the optimal choice, and also a point of consumer equilibrium.

Derivation of Demand Curve:

A linear demand curve's elasticity may be simply assessed graphically. The elasticity of demand at each point on a straight line demand curve is determined by the ratio between the demand curve's lower and upper segments at that position. Elasticity of demand is measured at any location by dividing the length of the lower segment of the demand curve by the length of the upper segment of the demand curve at that point. At the midpoint of any linear demand curve, the value of when mu is falling tu is ed is unity. In his estimation, the first apple is the best out of the lot available to him and thus gives him the highest satisfaction, measured as 20 utils.

Content: Marginal Utility (MU)

1. Total Utility determines the overall satisfaction obtained after consuming every single unit of that commodity.
2. The fundamental problem in utility analysis is that it makes the incorrect assumption that utility can only be stated in cardinal numbers.
3. When TU is at its maximum point, MU becomes zero; i.e., when the 5th burger is consumed.
4. In the diagram, where the IC curve is tangent to the budget line, that is point E is the optimal choice, and also a point of consumer equilibrium.

Although wealth and finance are frequently discussed in the book, it isn't all about money. From the late 1960s onward, Martin Fishbein and Icek Ajzen developed the Theory of Reasoned Action as one such theory. Consumption is founded on the purpose to generate or obtain an outcome, according to the theory's basic proposition.

The second apple will naturally be the second best with lesser amount of utility than the first, and has 15 utils. Ultimately, when the consumption of a commodity is increased beyond the point of satiety, TU starts falling as MU becomes negative. MU is the change in TU caused by the consumption of one extra unit.

When two things are consumed concurrently, satisfaction can be compared at best. Due to this drawback, utility analysis is shown to have minimal application in describing consumer equilibrium. Total Utility determines the overall satisfaction obtained after consuming every single unit of that commodity.