Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAPTER 4
Consumer Demand
Theory
4.1 TOTAL AND MARGINAL UTILITY
An individual demands a particular commodity because of the satisfaction or utility received from consuming
it. Up to a point, the more units of a commodity the individual consumes per unit of time, the greater the
total utility received. Although total utility increases, the extra or marginal utility received from consuming
each additional unit of the commodity usually decreases.
At some level of consumption, the total utility received by the individual from consuming the commodity will
reach a maximum and the marginal utility will be zero. This is the saturation point. Additional units of the commodity
cause total utility to fall and marginal utility to become negative because of storage or disposal problems.
EXAMPLE 1. The first two columns of Table 4.1 give an individual’s hypothetical total utility (TU) schedule from consuming
various alternative quantities of commodity X per unit of time. (Utility is here assumed to be measurable in terms of
a fictitious unit called the “util.”) Note that up to a point, as the individual consumes more units of X per unit of time, TU x
increases. Columns (1) and (3) of the table show this individual’s marginal utility (MU) schedule for commodity X. Each
value of column (3) is obtained by subtracting two successive values of column (2). For example, if the individual’s consumption
of X goes from zero units to 1 unit, the TU x goes from zero utils to 10 utils, giving a MU x of 10 utils. Similarly,
if the consumption of X rises from 1 unit to 2 units, the TU x rises from 10 to 18, giving a MU x of 8. Notice that as this
individual consumes more and more units of X per unit of time, the MU x falls.
Table 4.1
(1) Q x (2) TU x (3) MU x
0 0 ...
1 10 10
2 18 8
3 24 6
4 28 4
5 30 2
6 30 0
7 28 22
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