 10 utility theory and total utility. To understand the utility theory, we assume consumer is rational and whose objective is to maximize his satisfaction. Consumer always have a broad set of choices among which he has to allocate his limited income. This broad set of choices can be categorized under the subheading of food items or non-food items and similarly you can categorize these choices among goods and services. For example, if we make a discussion with reference to food items it might be possible it includes fruits, vegetable, meat and many other items that are being consumed by a particular consumer to get satisfaction and when we make discussion with reference to non-food items it includes clothes, shoes and many other things that are other than food items. Similarly, if we make differentiation between goods and services goods are usually tangible items while services are intangible but these are the activities that are performed by someone else for the benefit of the consumer. For example, if a consumer is getting services of the barber, barber is performing a task for the consumer similarly it might be possible someone get a services from a doctor to get the prescription to cure himself from different disease. The thing that is important is utility consumer always uses a good to get satisfaction and the consumption of goods and services is always provides certain level of the satisfaction and in the words in the language of economics the word satisfaction the word utility is used for satisfaction and total utility is the total satisfaction that someone gets from the consumption of particular commodity. For example, if someone uses a glass of a miller he is getting certain level of satisfaction and if he uses two glasses of miller again he will get a certain level of satisfaction and by and whenever we make the discussion about the measurement of the utility there are two types of the measurement one is one is carried out carried out under cardinal approach and other one is under ordinal approach under cardinal approach which usually assign numbers to utility to satisfaction. For example, if someone uses apples it might be possible that we can say he is getting 20 units of utility. Classical economists are earlier researchers earlier economists use you may use as a measure of the utility just like we use meter to measure the distance cages to measure kilograms to measure the weight similarly to measure the utility earlier researchers use utils to measure the utility when we measure the utility numerically when then we say we are measuring the utility under cardinal approach and sometimes we use this utility we rank the we rank the consumer on the basis of the utility that someone is getting against different combination of the commodities. For example, if someone is using one unit of apple and one unit of orange it might be possible we say consumer says I am getting more satisfaction from the consumption of apples as compared to oranges. So, under ordinal approach we basically order the utility that we are getting from different combination of commodities and one thing that earlier researchers assume earlier economist assumes utility is independent from each other the utility that someone is getting from apples it does not depend upon the utility that he is getting from oranges but later researchers find out utility depends upon the quantity of other commodities too and so as utility of a consumer depends upon number of commodities so we usually consider a consumption bundle and the consumption bundle usually contains specific combination of different commodities. For example, it might be possible a consumer is getting consumption by using apples and oranges simultaneously. So, by combining the utility that someone is getting from the consumption of apples and oranges it is the bundle against which a consumer is driving utility. Usually to measure the utility we use utility function utility function is an algebraic expression that assigns number to the consumption bundle. It facilitates ranking of the consumption bundles if we use those numerical numbers as it is then we say we are making discussion about the utility under the framework of cardinal utility but if we use those numbers to assign ranks to different levels of utility then we say we are using this utility function to assign ranks or orders to different bundles that to different bundles of commodities. For example, in this case we are assuming a total utility of a consumer depends upon the quantity of apples and quantity of oranges and we are computing this total utility by multiplying quantity of apples with quantity of oranges. For example, if someone is using five apples and three oranges we can say he got a total utility of 15 noodles under cardinal approach. And for example, in the next table in this table we are reporting different bundles of two commodities and here bundles includes different combinations of apples and oranges. For example, consumption bundle A contains three units of apples and 10 units of oranges and total utility that the consumer is getting from this particular bundle of commodities is equal to 30. Consumption bundle B contains four units of apples and seven units of oranges. Again by multiplying apples with number of with the quantity of oranges we computed the total utility 28. If basically the total utility that if we are using these numerics as it is then we say we are reporting utility under cardinal approach. But if we use these number to make a comparison across bundles then we can say if we are reporting utility under ordinal approach. For example, to make more clarification about the cardinal approach and ordinal approach suppose we assume another bundle having three units of apples and five units of oranges. So by using three units of apples and five units of oranges consumer is getting a total utility is equal to 15. Under cardinal approach if we make a comparison of these 15 units of total utility with bundle A we can say consumer is getting satisfaction 50% less than the satisfaction that he is getting against bundle A. Under cardinal approach we can make a comparison about the numerics to what extent utility increased from consumption bundle A. But under ordinal approach we can use these numbers only to assign ranks whether the consumption bundle having providing utility 15 is better than the consumption bundle that provides a utility is equal to 30. So consumption bundle that provides utility is equal to 30 we can say that is a preferred bundle as compared to consumption bundle that provides a utility equal to 15. So here we are not in a position to say to what extent consumer is preferring a bundle over the other bundle. Consumer only make a preference consumption bundle having providing utility 15 is less preferred than the consumption bundle of consumption bundle of commodity A that provides utility is equal to 30. So derivation of the satisfaction this derivation of the satisfaction from the consumption of goods and services is the basics of the consumer theory. Sometimes we make a transformation of our utility function and if we carry out a transformation of utility function in such a format the order of preferences of the consumer does not change that transformation of the utility function is called as monotonic transformation. For example in this case we are marrying utility by multiplying quantity of apples with quantity of oranges. Suppose if a constant number 10 is added to this utility function again consumer getting a satisfaction against consumption bundle A is equal to 40. Against consumption bundle B he will get a satisfaction equal to 38. Against consumption bundle C he will get a level of satisfaction is equal to 40. So by simply adding a constant number where indicated utility of the consumer increased with a constant rate and if we are using these numbers to measure the utility algebraically then this is cardinal utility and if we are using these numbers to order the different consumption bundles then we are under ordinal utility. In this table to understand the concept of the utility theory and total utility in this table we are reporting quantity of oranges in the first column and total utility against the second column. For example if someone is using 0 units of the oranges his getting utility is equal to 0. Suppose 0 Utah against one unit of oranges consumer is getting a satisfaction equal to 20 and if consumer chooses two units of oranges then he get a satisfaction equal to 30. So up to unit 10 up to unit 11 we can see there is a consistent increase in total utility but after unit 11 we see by using 12th unit of orange there is a decrease in total utility. So this whenever a consumer uses a commodity consistently his total utility increases up to a certain level but after reaching a maximum point it start decreasing. Same has been reported in this diagram we are taking quantity of oranges on horizontal axis and quantity and utility on vertical axis and by looking at the graph we can see utility of the consumer is maximum when he is consuming 11th unit of oranges but when he used 12th unit of orange his utility decrease against 11th unit his getting utility equal to 74 but against 12th unit when he used 12th unit his total utility becomes 70.