It is given by Dupit, Gossen, Walras, Menger and Jevons. Later Marshal and Pigou further elaborated it.

According to them utility can be measured in cardinal or definite numbers like 1, 2, 3, 4,……

Cardinal numbers are those numbers which can be added and subtracted.

Fisher uses the term Utils to measure the utility.

Example: We can say that we get 10 utils from a cup of tea.

Utility is Subjective Utility is Relative Utility is not Essentially Useful Utility in independent of morality

Assumption of cardinal Analysis: Rational Consumer Cardinal Utility Independent Utility Marginal Utility of Money is Constant Divisibility Diminishing Marginal Utility Total utility Depends on Quantity of Individual

Commodities. U= f(n1, n2,………………..nn )

There are three concepts:1. Initial utility: The utility derived from first unit of

commodity is called initial utility.2. Marginal Utility: Marginal utility means the addition made

in total utility. It can be measured as: MUn = TUn - TUn-1

or MU = -----

Marginal utility can be of three typed (i) Positive (ii) zero (iii) negative.

3. Total Utility: The utility derived by a person from the total number of units of a commodity consumed by him is called total utility.

TUn = U1+U2+U3+………….Un or

TUn = ∑MUn

▲TU▲Q

1. When MU is +ve, TU increases2. When MU is 0, TU is maximum3. When MU –ve, TU decreases

Unit of a good Consumed

Marginal Utility

Total utility

I 6 6

II 4 10

III 2 12

IV 0 12

V -2 10

VI -4 6

Y

TU

-ve Marginal utility

Zero+ve MU

Util

ity

Quantity

XY

O

There are two laws:1. Law of Diminishing Marginal Utility2. Law of Equi Marginal Utility

It was first given by ‘Gosen’. So it is called Gossen’s first law. Later this is given by Marshal in his book ‘Principal of Economics’

Meaning:

According to this law, Marginal utility of a good diminishes as an individual consumes more amd more of a good.

Definition:

Gossen’ “The magnitude of one and the same satisfaction ,when we consume to enjoy it without interruption, continually decreases until satiation is reached.

While the total wants of a man are virtually unlimited, each singal want is satiable. There for as individual consume more and more units of a good intensity of his want for good goes on falling.

Different goods are not perfectly substitutes for each other in the satisfaction of various particular wants.

Rational Consumer Cardinal Utility Independent Utility Marginal Utility of Money is Constant Divisibility Diminishing Marginal Utility Total utility Depends on Quantity of

Individual Commodities. U= f(n1, n2,………………..nn )

Quantity Marginal utility

1 10

2 8

3 6

4 4

5 2

6 0

7 -2

Y

108

64

2O-2

1 2 3 4 5 6 7 X Quantity

MU

Util

ity

Commodities are not perfectly Substitute Satisfaction of Particular wants We give top priority to the most

important use.

Initial Unit Rare and curious things Drunkard Misers Good Books, poems, music

Measurement of utility is not possible Marginal utility of money does not remains constant Utility is not independent Unrealistic assumption of constant income, taste,

fashion Rate of declining Marginal Utility is not clear Inter-personal comparisons of utility are not

possible.

Bases of the laws of consumption Importance for the consumer Variety in production The law helps in price determination Explanation of paradox of value Bases of progressive taxation