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Cardinal Utility Theory
The term was given by Jeremy Bentham. Alfred
Marshall (184!1"4# $n his boo% &rin'iles of)'onomi's. A''ording to Bentham *tility is thedi+eren'e between the leas*re en,oyed andthe ain s*+ered. A''ording him and many
other e'onomist *tility is meas*rable in *tils.
Total Utility $t is s*m of all *tilities derivedfrom the total n*mber of *nits 'ons*med.
T*n- *1 * */00.*nMarginal Utility $t is *tility form 'ons*mingaddition *nit of the 'ommodity.
MU = TunT*n!1
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2elation between MU3TU and AUNumber of
Units
Total Utility Marginal
Utility
Average Utility
1 1 1 1
18 8 "
/ 4 5 8
4 8 4 6
7 / 5
5 / 7
6 8 ! 4
8 4 !4 /
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aw of )9*i! Marginal Utility
The law of e9*i!marginal *tilitystates that a 'ons*mer 'an ma:imisehis satisfa'tion by allo'ating his
in'ome among vario*s *ses in a s*'ha manner that marginal *tility ofmoney in every *se is e9*al.
): $n'ome ! ; // &ri'e of A !; 7
&ri'e of B ! ;/
&ri'e of C ! ;
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aw of e9*i!marginal *tility
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