Marginal utility: concept, laws, conclusions. Marginal utility, law of diminishing marginal utility. Laws of Economics

Marginal utility theory underlies the explanation of how consumers make their choices. Economists of the Austrian school Menger, Wieser, and Böhm-Bawerk made a significant contribution to the creation of this theory. Utility is the satisfaction, the value obtained from the consumption of goods. Utility is the goal of consumption; obtaining it means increasing the level of consumer well-being. The ability of a good to satisfy any need generally characterizes abstract utility. A subjective assessment of the utility of a given unit of good characterizes specific utility. For one consumer, not only different economic goods have different utility, but also individual units of the same good. In this connection, it is necessary to distinguish between total and marginal utility. The utility obtained from consuming the entire volume of some good is called overall usefulness(TU). The additional utility received by a consumer from increasing the consumption of a given good by one unit is called marginal utility(MU). Consumer assessment of usefulness is a subjective phenomenon, but there are common features in determining utility by all consumers. Firstly, each consumer mentally ranks his needs according to importance and satisfies the more pressing needs first. Goods that satisfy the most pressing needs are rated higher in utility than all other goods. Secondly, as consumption occurs, the need is saturated, that is, as consumption occurs, the intensity of consumption decreases and each subsequent unit of a good is valued lower in utility than all previous units of this good.

Let's consider consumer behavior based on the models used by economists of the Austrian school. In these models, the consumer is a hermit living in the forest. Suppose a hermit has 3 bags of grain, which need to be distributed among such needs as food - this is the first most important need, for the next year's harvest - the second most important need, and for feeding domestic animals - the third most important need. Using numbers from 1 to 3, we obtain the following ratio of utilities of different units of the same good for a particular consumer: the marginal utility of the first bag is 3, the marginal utility of the second bag is 2, the marginal utility of the third bag is equal. In this case, the total utility from consuming the first bag will be 3, from consuming two bags will be 5 = 3+2, and from consuming the entire supply of good will be 6 = 3+2+1.

Rice. Marginal utility Fig. Overall usefulness

Thus, as the volume of consumption increases, the total utility of the good tends to increase, and the utility of each subsequent unit of the good tends to decrease. The decrease in marginal utility as the need is saturated reflects law of diminishing marginal utility. Marginal utility determines the price of a good.

A rational consumer strives to achieve a maximum of total utility. If we assume that the only limitation on consumption is the quantity of goods, then utility maximization is achieved with such a combination of economic goods when their marginal utilities are equal: MU1 = MU2 = MU3, etc. In market conditions, the main restrictions are the prices of goods and consumer income. Subject to these limitations utility maximization condition will have the form of equality of weighted marginal utilities, that is, marginal utilities per ruble of costs: MU1/P1 = MU2/P2 = MU3/P3, etc. If such equality is not achieved, then the consumer can always increase his degree of satisfaction through redistribution. For the first time, the rules of rational behavior of a subject were described by the German economist G. Gossen.

Each consumer has his own criterion for assessing the usefulness of a good, but the content of such a criterion is a personal matter for each person. On the issue of measuring utility in economic theory Two approaches have emerged. Cardinalists assume that each good for a given consumer has a quantitatively determined measure of utility; he can determine how much the utility of one good is greater than the utility of another good. ABOUT radicalists assume that the consumer is able to measure only the order of preference of one set of goods over another. The selection criterion is expressed by the concepts of more, less and indifferent, that is, equally.

People's needs have the ability to be saturated. Thus, a hungry person can eat a lot of bread, but when he satisfies his hunger, each additional piece of bread will have less and less value for him. Most likely, he will prefer other food. Thus, as the quantity of goods consumed increases and needs are satisfied, as noted above, the utility of each subsequent unit of goods (added utility) decreases. The utility of the last (additional) unit is called ultimate(or marginal) utility, and it decreases as the need is saturated. This dependence in economic science called law of diminishing marginal utility.

As the number of foods consumed increases, their overall (aggregate) utility increases, although at a slower pace. Marginal utility is the increase in utility with each new unit, and it tends to decrease with each additional unit of product.

The Law of Diminishing Marginal Utility states that the more goods and services consumed during a given period of time, the lower their marginal utility (that is, the utility of each new additional unit) holding all other factors of consumption constant. This law also determines the usefulness of water: the first sip of water (at a given period) is absolutely necessary for the preservation of life, and its marginal utility is great, but as the amount of water consumed increases, it satisfies ever wider needs, begins to be used for watering streets, gardens, etc. etc. In this case, the utility of each new additional liter is much less than the first.

This law says nothing about how quickly marginal utility decreases. Here the norm is different: for food products the marginal utility decreases quickly, for others it decreases more slowly. This property explains the paradox of water and diamond. Water consumption occurs at a low level of marginal utility, since water is plentiful and diamonds are rare, and consumption is at a relatively high level marginal utility. Although the total utility of water is very high, its marginal utility is low.

Relative prices reflect marginal utility. And at this point the connection between the law of diminishing utility and demand is revealed.

Let's consider this relationship using the example of an individual consumer who consumes only 2 goods - beer and bread. Let us assume that the consumer can measure the degree of his satisfaction with a product (beer) in some units of utility. The first unit gives the greatest satisfaction (40 units) and has the greatest utility (marginal utility coincides with total utility). The utility of the second unit is slightly less - 30 units, the third - 20 units.

The total utility of all consumed products will be 40+30+20 = 90 units. In the same way (but in different proportions) the marginal utility of bread is added up. How will the consumer distribute the limited budget at his disposal between two goods - bread and beer? The theory of consumer choice answers these questions. Consumer choice is subject to a number of limitations:

The size of the budget he has;

The price level of purchased goods;

Tastes that rank products for the consumer. Consumer budget and prices determine which set of products the consumer will prefer. If the buyer behaves rationally, then he should get the maximum benefit from the money at his disposal, that is, he will prefer a combination of beer and bread in order to obtain maximum satisfaction. The maximum is achieved when no better combination can be found. And if you buy a little more of one product and a little less of another, then customer satisfaction will be less. This occurs if the last monetary unit of income spent on a unit of each product produces the same additional (marginal) utility. Otherwise, if 1 dollar spent on good A will bring more utility to the buyer than 1 dollar. for product B , the buyer will naturally prefer to purchase good A and will do so until the marginal utility for each dollar spent on miscellaneous goods, will not compare. When the consumer achieves this, he is in a state of equilibrium.

Consumer equilibrium occurs when he spends his entire income in such a way that the marginal utility for each dollar spent is equal for any good purchased. In this state, the consumer is not inclined to change anything in his consumption as long as some other factors (prices, income, preferences) remain constant.

If a consumer purchases goods A and B, then

Consumer equilibrium conditions show that it does not matter in what units utility is measured. All that matters is the relative magnitude of marginal utility.

8. Consumer preferences. Indifference curves.

The choice of the consumer depends on his tastes and preferences. For all their individuality, one can nevertheless, by observing the behavior of different consumers, discover a number of common features.

1. Consumer capable of ranking all sets goods and services in terms of their significance and preference for him. This position is sometimes called axiom of complete orderliness.

By comparing two sets of goods, consumers can determine which one they prefer, or will not differentiate between them if the sets seem to them to be of equal value and provide the same satisfaction. In the latter case, consumers indifferent which set to consume. We emphasize that preferences reflect the different desirability of a good, but do not take into account its price. It would not be a contradiction if, for example, a car enthusiast prefers a 600 Mercedes and buys an Oka.

2. The consumer is consistent in his preferences. If he prefers bundle A to bundle B, and bundle B to bundle C, then he will prefer bundle A to bundle C. This assumption is called axiom of transitivity of preferences.

3. Consumer prefers more of a good to less, unless it requires giving up other benefits. For example, a consumer bundle that includes 1 unit of good A and 2 units of good B is preferable to him than the bundle 1A + 1B. Let us emphasize that we are talking about goods, and not about the so-called “ anti-benefits" (bads), when a smaller quantity is preferred to a larger quantity. Examples of anti-goods include garbage, tobacco smoke, the 8th of March holiday, and the film “The Lord of the Rings.” Whether an item is good or bad for you depends on your preferences. Many people like science fiction films. I don't.

Although there is a huge variety of goods known to the consumer, let us first consider the choice between only two of them. The basis for such a simplification can be the assumption that the consumer has already decided what quantities of all other goods to consume.

A graphical interpretation of a consumer’s choice of a particular set of goods (benefits) can be represented using an indifference curve. Indifference curve - shows all possible combinations of goods that have the same utility, so that the consumer is “indifferent” which one to choose.
Let's take two different products, for example, product A and product B.
In table 8.3 shows various combinations of these two products.
Each of these combinations (C, D, E, M, N) provides the same utility to the consumer. Based on the table data, we will construct an indifference curve (Fig. 8.3).
In addition to the indifference curve, you can construct a map of indifference curves. An indifference curve map is a set of indifference curves (Figure 8.4). Any point on the indifference curve that is higher and to the right brings greater utility to the consumer. Consequently, each level of consumption corresponds to its own level of preferences regarding the utility of sets of goods (goods). And each of these levels has its own indifference curve.

8.3. SELECTING A COMBINATION OF PRODUCTS THAT MAXIMIZES BENEFITS

Rice. 8.3. Indifference curve

Rice. 8.4. Indifference curve map

When analyzing an indifference curve, it is necessary to note the following:
1. Just like the marginal utility curve, the indifference curve resembles the demand curve. This is explained by the fact that from individual indifference curves a general buyer demand curve for goods is formed;
2. By increasing the consumption of product B, the consumer is ready to give up less and less quantity of product A: when moving from point C to point D, from 3 kg of product A for an additional 1 kg of product B; from point D to point E - only from 2 kg of product A, etc.
IN general view the amount of good X that the consumer is willing to give up in order to increase the consumption of good Y by one unit is called the marginal rate of substitution of good Y by good X, which is calculated by the formula:

where MRS xy is the marginal rate of substitution of product Y with product X.
For the continuous case, this formula looks like this:

In our example, the marginal rate of substitution will be, when moving from point C to D- 3 (-3/1) and then -2; -0.5; -0.33.
Based on the norms of substitution, it is possible to determine how significant one product is relative to another for the consumer and how much of one product he is willing to give up in order to increase consumption of another.
The theory of consumer choice is widely used by enterprises in developing new types of products, as well as in improving existing ones. To make a decision on improving manufactured products, it is necessary to take into account not only the additional costs required for this, but also consumer preferences. Which product property is more significant for potential buyers? What to look for Special attention?
For example, for an enterprise that produces clothing, you need to know what is more important for consumers in new models: practicality, comfort, style, color? As a rule, a company conducts a survey among possible buyers. Indifference curves for all specified clothing parameters, calculated for each respondent, make it possible to identify the preferences of the majority of them and determine what to invest in first. It may be that less investment is required in developing more convenient models than in design. However, if consumers have a clear preference for design, that should be the first place to invest.

9. Budget restrictions.

Budget constraint (budget constraint) shows all combinations of goods that can be purchased by a consumer at a given income and given prices. The budget constraint states that total expenditure must equal income. An increase or decrease in income causes a shift in the budget line.

Budget line (budget line) is a straight line, the points of which show sets of goods, upon the purchase of which the allocated income is spent in full. The budget line intersects the coordinate axes at points showing the maximum possible quantities of goods that can be purchased with a given income at certain prices. For each budget line, you can construct an indifference curve that will have a tangent point with the budget line.

If I- consumer income, R x- price of the good X, P y– price of the good Y, A X And Y are the purchased quantities of goods, then the budget constraint equation can be written as follows:

I = R x × X + P y × Y

At X = 0, Y = I / P y, i.e. all consumer income is spent for the benefit Y. At Y = 0, X = I / R x, i.e. we find the amount of good X, which a consumer can buy at a price R x.

As can be seen in the graph, the consumer has a fixed income. Let's say he spends 6 rubles. in a day. When this product X costs 1.5 rubles, and the product Y– 1 rub. If you spend all your money on a product X, then, as can be seen from the graph, you can buy 4 units. , and if all the money is spent on goods Y, then you can buy 6 units. At the same time, the consumer does not have to buy only the product X or product Y, he can spend his money on any of the possible combinations of these goods within the limits of his income of 6 rubles, which is what the budget line shows.

It should be noted that when a consumer’s income changes ( I), the budget line can shift parallel to the old line, and when the price of one of the goods changes, the shift will be non-parallel, as demonstrated in the graph.

By using indifference curves and the budget line simultaneously, the consumer's equilibrium can be found.

10. Consumer choice. Consumer equilibrium.

Consumer choice is the process of forming the demand of a buyer who purchases goods taking into account prices and personal income. It is known that monetary income has a direct and immediate impact on demand, and prices have a direct impact on the quantity of goods purchased. This influence can be traced through the characteristics of consumer choice.
Consumer choice in the world of goods is highly individual. Each buyer is guided by his own taste, attitude to fashion, product design and other subjective preferences.
Let’s say there are only two goods A and B, the prices of which are 200 and 400 rubles, respectively. How many units of goods A and B will the consumer buy if his budget is 1400 rubles? In other words, how will he distribute his personal budget for the purchase of these goods, based on their marginal utilities.
The consumer seeks to obtain maximum overall utility from his purchases. The limited personal budget and the desire to distribute it in the most rational way, taking into account existing prices, forces the consumer to make a choice: buy some goods and refuse others. From various alternatives, the consumer will choose those that correspond to his ideas about the marginal utilities of goods A and goods B, commensurate with the capabilities of his personal budget.
The marginal utilities of goods are correlated and compared by the consumer with the money paid for them. In this sense, money is an important and fairly definite quantitative measure of utility for the consumer.
Let the consumer evaluate the marginal utilities of goods A and B in points based on his subjective ideas (the data is placed in the columns of Table 8.2).

8.2. Marginal utilities of goods A and B

According to the consumer's subjective assessment, the purchase of product B will bring him the greatest satisfaction. However, he takes into account not only the marginal utility of product B, but also its price. But the price of product B is twice the price of product A. The consumer makes a purchase decision based on the marginal utility per unit of money spent, i.e. for 1 rub. Marginal utility data for 1 ruble. will be different from the marginal utility data. Therefore, the purchase of three units of product A and two units of product B will satisfy the consumer’s needs to the maximum.
Any other combination of quantities of goods A and B at existing prices and a certain amount of available funds will give less total utility to the consumer.
Consumer equilibrium is achieved when the marginal utility ratios individual goods to their prices are equal. This equilibrium is called Gossen’s second law, and mathematically it is expressed as the equality:

In our example, 12: 200 = 24: 400.
If the price of product B decreases by half, then by the same 1400 rubles. the consumer will buy three units of good A and four units of good B. Thus, prices make it possible to establish optimal proportions of purchased goods. While marginal utility per one monetary unit If at least one good is higher than that of other goods, purchases should be redistributed in its favor. At the same time, the purchase of goods with lower marginal utility per monetary unit will be reduced. The result of the redistribution of purchases will be an increase in overall utility for the consumer.

CONTINUED from another source

Optimal choice goods and services must meet two requirements.

1. It should be on the budget line to the left and below - some unspent part of the income; on the right and above - there cannot be purchases within this income (Fig. 9.4).

2. Optimal set consumer goods and services must provide the consumer with their most preferred combination. These two conditions reduce the problem of maximizing consumer satisfaction to choosing an appropriate point on the budget line. This will be the point of tangency between the budget line and the indifference curve.

Rice. 9.4. Consumer equilibrium position (in ordinal utility theory)

The buyer's equilibrium changes under the influence of:

1) changes in the buyer’s income (Fig. 9.5);

Rice. 9.5. Income-consumption curve (standard of living)

2) prices for goods and services (Fig. 9.6);

Rice. 9.6. Price-consumption curve

3) growth of real income, as a result of which the structure of needs changes. The German statistician E. Engel (1821–1896) first drew attention to this (Fig. 9.7).

Rice. 9.7. Engel curves

A change in the price of a good affects the quantity demanded through the income effect and the substitution effect. Income effect occurs because a change in the price of a given product increases (if the price decreases) or decreases (if the price increases) real income, or purchasing power, consumer. Substitution effect(replacement) arises as a result relative change prices The substitution effect promotes an increase in consumption of a relatively cheaper product, while the income effect can stimulate both an increase and a decrease in the consumption of a product or be neutral. To determine the substitution effect, we need to separate out the income effect. Or, conversely, to determine the income effect, we need to separate out the substitution effect.

There are two approaches to determining real income, associated with the names of the English economist J. Hicks and the Russian mathematician and economist E.E. Slutsky. According to Hicks, different levels cash income, providing same level of satisfaction those. allowing to achieve the same indifference curve represent the same level of real income. According to Slutsky, only the level of cash income that is sufficient to purchase the same set or combination of goods, provides a constant level of real income. Hicks' approach is more consistent with the basic principles of the ordinal utility theory, while Slutsky's approach has the advantage that it allows one to give a quantitative solution to the problem based on statistical materials.

11. Production technology and its characteristics. Production factors. Production function.

Productionis the process of converting resources into goods and services that have value to consumers(see: Fig. 5.1.). In a broad sense, production includes everything that is associated with the provision of goods and services to economic entities for which they have value, that is, for which they are willing to pay. Therefore, production, as a category of microeconomic analysis, is significantly broader than the ordinary understanding of this term, as a synonym for “manufacturing,” and includes not always obvious actions that, nevertheless, play an important role in the effective implementation of this process. Studying the production process in microeconomics does not require a detailed study of all its aspects. We are only interested in the most general economic principles production activities, which allow us to ensure successful progress in the direction common task economics searching for ways to optimally distribute society's limited resources. To achieve these goals, we will use concepts and methods for rationalizing choice that are already familiar to us and previously used.

In the most general form, resources used in the production process can be divided into several types. This:

– labor services;

– capital services;

- Natural resources.

In addition, the implementation of the production process presupposes the presence of a certain system of interaction of these resources, which is expressed in a certain organization of the production process, supervision over it, and the presence of certain systems of control, coordination and management. The implementation of all these actions means the use of entrepreneurial actions, expressed in the constant search for steps that would ensure the most effective achievement of the goals. In this sense entrepreneurship– there is a process of searching for new business opportunities, using new technologies and new areas of capital investment, overcoming old stereotypes and boundaries. Such actions not only require the appropriate knowledge and skills, but also presuppose the possession of a certain talent. Therefore, entrepreneurship is sometimes considered as an independent factor of production.

Rice. 5.1. Production process

Be that as it may, the effective integration of everything necessary for the implementation of the production process (labor services, capital services, natural resources and entrepreneurship) requires an organizational form. This organizational form is entrepreneurial firm- an organization established and operating for the purpose of generating profit for its owners by offering goods and services to the market.

As a rule, there are 3 organizational forms of business:

– individual private company;

– partnership (partnership);

– Joint-Stock Company(corporation).

This division of organizational forms of business is based on the form of ownership. What is important here is that each subsequent organizational form represents a more developed entity,

ensuring, under certain conditions, more effective achievement of the goal. We will not consider the features of each of the presented forms. These issues are sufficiently covered in the literature. In addition, they will be discussed in detail in the course of enterprise economics. Let us only note that we are considering a simplified version of an entrepreneurial firm as an institution of production, within which a single product is created (according to at least, for simplicity, we will analyze the principles of organizing the activities of firms within the framework of the production of one good or product), and all activities are subordinated to the goals of maximizing profits received by the owners

Total and marginal utility of a good. Usefulness and price.

The consumer’s goal for which he buys a product is to satisfy his requests and needs and receive pleasure from consuming goods and services. The main factor in consumer choice is the usefulness of a particular product.

Utility is the degree to which individuals’ needs are satisfied when they consume goods or services or engage in any activity.

overall utility (total utility) represents the total utility resulting from the consumption of all units of a good. Total utility increases as consumption increases, but not in proportion to the volume of consumption, and gradually decays until it reaches zero.

Material goods are important not in themselves, but because people use them to satisfy their needs, for example, satisfying hunger, protection from bad weather, home comfort. Each individual evaluates this or that good in his own way. In a word, utility is a person’s judgment of good.

The concept of “utility” was introduced into economics by the English philosopher Jeremy Bentham (1748–1832). Today, the entire science of market economics is essentially based on two theories: utility and value. Using the category of utility, the action of the law of demand is explained, i.e. Why, as the price of a product rises, the quantity demanded for it falls, and vice versa.

It should be noted that usefulness is a subjective concept. What is pleasant and useful for one person may not be pleasant or completely useless for another. therefore, it cannot be accurately quantified. However, economists have found that utility has the property of ordinal measurability, with the help of which one can find out whether the degree of consumer satisfaction decreases or increases with an increase in the amount of goods consumed, although this degree of satisfaction itself cannot be accurately determined.

For the convenience of assessing the degree of satisfaction of utility, a conventional unit of measurement was introduced, which was called “util” (from English. utility – usefulness). It allows us to establish a relationship between the number of consumed units of a good and the additional (additional) utility extracted from each subsequent consumed unit. This, in turn, determines the value of the product in the eyes of the buyer, and therefore the maximum price at which he is willing to buy it.

There are two forms of utility: total and marginal. WITH total utility represents the total utility resulting from the consumption of all units of a good. Total utility increases as consumption increases, but not in proportion to the volume of consumption, and gradually decays until it reaches zero.

Marginal utility– additional utility added by each last consumed unit of a good. One of the prominent representatives of the marginalist movement (from English. marginal - limiting) direction of economic theory - American economist William Jevons (1835–1882) wrote: “When a certain quantity of an object is received, further quantities are indifferent to us or may even cause disgust. Each subsequent application will usually produce feelings less intense than the previous ones. Then the utility of the last share of the article usually decreases in some proportion or as some function of the whole quantity received” 1 . Marginal utility is the increase in total utility when consuming one additional unit of a good.

So, utility function is a function showing the decrease in the utility of a good with an increase in its quantity:

U = f (Qi),

Where U– utility of the good;

Qi– successive quantities of a good.

Thus, marginal utility is inversely proportional to the amount consumed. This dependence is reflected law of diminishing marginal utility: As the quantity of a good consumed increases, its marginal utility decreases.

From this explanation we can conclude that the value of a product (exchange value) is determined by subjective ideas about the marginal utility of the last unit of the product available to the consumer. Since the marginal utility of a good decreases as it is consumed, the consumer increases the volume of purchases (volume of demand) only when its price decreases.

The marginal utility of goods when they are abundant is zero. However, a more typical situation is the scarcity of certain goods and services. Then the problem of preference arises for certain needs that can be satisfied with the help of a limited supply of goods.

Law of Diminishing Marginal Utility (Law of diminishing marginal utility) is a law that reflects the relationship between the amount of a good consumed and the degree of satisfaction from the consumption of each additional unit.

The law states that as the quantity of a good consumed increases, the total utility (TU) from consuming it will increase, but in a decreasing proportion, and the marginal utility (MU), or the additional utility from consuming an additional unit, will decrease.

Also, this law is usually called Gossen's first law, in honor of the German economist Hermann Gossen, who first put forward the idea of diminishing marginal utility.

Total and marginal utility

In economic theory, a distinction is made between general (aggregate) and marginal utility.

Overall usefulness

Overall usefulness is the total satisfaction obtained from consuming a given quantity of a good or service over a given time.

As the quantity of a good available to the consumer increases, total utility increases, but at the same time the rate of increase in total utility slows down (Figure 21.1). If the benefit that satisfies the need for food (i.e. food) is divided into three parts, the first part is conventionally designated 10 units, then when adding the second part, the utility will increase to 18, but not to 20 units, since the intensity of satisfying the need decreases (after all, 10 units have already been consumed and the feeling of hunger is no longer so acute). After the third part, the utility will increase to 24 units. etc. Adding subsequent parts will eventually lead to a certain peak, after which the total utility will begin to decrease.

We plot the quantity of the good horizontally, and the total utility of the good vertically. The max point shows the peak saturation of demand.

The total utility graph shows that if at first the total utility of a good increases, then after the max point it decreases.

Marginal utility

The change in total utility is reflected in the marginal utility indicator.

Marginal utility MU is the additional utility obtained from consuming one additional unit of a given good per unit of time.

4.1.2. Marginal utility and the demand curve

The demons surrounded me with a hopeless wall. They look with greedy interest: What will become of me? They surrounded me, as if they knew that someday I would lose my temper, drink and go on a spree, and go all out. (1999) N. I. Tsvetovaty

Curve individual demand for any good will coincide with the marginal utility curve for this good, measured in money. In Fig. Figure 4.4 shows the marginal utility curve for an individual for an individual good. If the price of a good was P, then the individual would consume Q l this product, while M.U.= R. Dot A will belong to the demand line of this individual. In the same way, you can get any other point on the individual demand line. At a price R 2 the individual will purchase Q 2(dot b), at a price R 3 purchases will amount to Q 3(point c), etc.

R\ R 2 Rz

i^mu = d

O Oi 0.2 Oz G

Rice. 4.4. Construction of an individual demand line based on the theory of marginal utility

While an individual strives to maximize consumer surplus and acts in accordance with the principle P™MU, the individual demand line will be

coincide with the marginal utility line.

Market demand curve is the horizontal sum of individual demand curves, i.e. the sum of the curves M.U.

Shape of demand curves. Price elasticity of demand reflects the degree to which it decreases M.U. with increasing consumption. If a good has close substitutes, then demand is likely to be elastic and M.U. with increasing consumption it will decrease slowly. The reason is that an increase in product consumption will be accompanied by decrease consumption of alternative products. Since the total consumption of this product plus of alternative products has increased slightly (if at all), marginal utility will decline slowly.

For example, the demand for a given grade of gasoline is likely to have a fairly high price elasticity because other grades are substitutes. If there is a drop in oil company gasoline prices A(and prices for all other grades are constant), then the company’s gasoline consumption A will increase significantly. Marginal utility (MU) gasoline company A is falling slowly, as motorists began to consume less gasoline of other types.

Vulnerability of the single-good marginal utility theory. A change in the consumption of one good affects the marginal utility of substitute goods and complementary goods. And the ego, in turn, affects the amount of income that remains for the purchase of other goods. Therefore, a more satisfactory explanation of demand is the analysis choice between goods rather than searching for one isolated product.

The derivation of the demand curve from the marginal utility curve, measured by money, also assumes that money itself has constant marginal utility. In fact, this is not so. If people's income increases, they consume more. Other things being equal, the marginal utility of goods decreases with increasing volumes of consumption. Thus, the consumption of each subsequent ruble will bring less satisfaction than the previous one. In other words, The marginal utility of money decreases as income rises. Therefore, we cannot use money as an absolute measure of utility.

Indifference curves are used to study what the consumer wants. Indifference curve (IC - indifference curve) is a set of points, each of which represents a set of two goods (or two product sets) that the consumer does not care which of these sets to choose, since their utility for the consumer is the same. Therefore, the indifference curve is a line of equal utilities.

Rice. 1. Curves and indifference map

Moving down the indifference curve, the consumer gives up a certain amount of one good at in favor of more of another good X.

To quantify this, the concept is used marginal rate of substitution (marginal rate of substitution – M.R.S.) –

The marginal rate of substitution thus characterizes the slope of the indifference curve.

The marginal rate of substitution can take on different values, but, as a rule, it decreases as one good is replaced by another (analogous to diminishing marginal utility).

If you graphically display the system of consumer preferences, you get an indifference map.

Indifference Map is a set of indifference curves. Each subsequent curve, further removed from the origin, corresponds to a larger value of total utility.

Indifference curves show only opportunity replacing one good with another. This does not take into account income and prices, i.e., what the consumer can afford.

To depict the variety of product sets available to consumers, it is used budget line (budget line - BL).

4.2. Budget constraint. Budget

The line described by this equation is called budget line . Graphically it looks like:

Rice. 2. Budget line

When income changes, a parallel shift occurs B.L. 1 in B.L. 2. With a proportional change in prices, the same thing happens, since a rise in prices relatively reduces income, and vice versa, a decrease in prices relatively increases the consumer's income.

If prices change disproportionately (for example, the price of a product increases X), there is a change in the slope of the budget line ( B.L. 1 is shifted to B.L. 3). That is, the slope B.L. reflects the price ratio.

Budget direct (budget constraint line, English Budget constraint) - shows different combinations of two goods that a consumer can purchase if his money income has a fixed value. The points on the line reflect the limits of the consumer's budget. Consumer choice theory uses the concept budget restrictions along with an indifference curve to analyze consumer choice.

The equation direct budget constraint(that is, the limitation of the consumer’s purchasing power by the amount of his monetary income), in the simplified case of choosing between two types of goods, can be summarized by the equation:

conclusions

An indifference curve is a set of points, each of which represents a set of two goods (or two product bundles) such that the consumer does not care which of these bundles to choose, since their utility to the consumer is the same. Therefore, the indifference curve is a line of equal utilities.

Moving down the indifference curve, the consumer gives up a certain amount of one good in favor of a larger amount of another good. To quantify this, the concept of “marginal rate of substitution” is used.

An indifference map is a set of indifference curves. Each subsequent curve, further removed from the origin, corresponds to a larger value of total utility.

The budget line shows which sets of goods are available to the consumer in accordance with his income and prices of goods. When income changes, a parallel shift in the budget line occurs. With a proportional change in prices, the same thing happens, since a rise in prices relatively reduces income, and vice versa, a decrease in prices relatively increases the consumer's income. If prices change disproportionately, the slope of the budget line changes. That is, the slope of BL reflects the price relationship.

The consumer's optimum is characterized by the point of tangency between the budget line and the indifference curve. Any deviation from it either reduces the level of consumption or is unaffordable. As income increases, the budget line shifts to the right. The consumer can move to a higher indifference curve, i.e., he gets the opportunity to increase consumption of both goods.

A change in the price of a good affects the quantity demanded through the income effect and the substitution effect. This is due to the fact that in the event of a price change, two processes occur: firstly, the real income of the individual changes (as the price of a product decreases, income relatively increases); secondly, there is a relative replacement of more expensive goods cheaper

Replacement zone(substitution) - a section of an indifference curve in which one good can be effectively replaced by another.
Consider the indifference curve RS (Figure 4-8). The quantity of good X, equal to OT, represents the minimum necessary amount of consumption of good X, which the consumer cannot refuse, no matter how great the good Y offered in return. Similarly, OM is the minimum necessary amount of consumption of good Y. Mutual replacement of goods X and Y makes sense only within the RS segment. Outside of it, replacement is excluded and the two goods appear as independent of each other.
Marginal rate of substitution(marginal rate of substitution - MRS) - the amount by which the consumption of one of two goods must be increased (or decreased) in order to fully compensate the consumer for the decrease (or increase) in consumption of the other good by one additional (marginal) unit.
or for continuous case
where MRS xy is the marginal rate of substitution of y by x.
The tangent of the slope of the indifference curve at any point is a negative value, since a reduction in one good corresponds to an increase in another. The marginal rate of substitution is a positive value, since it is equal to the absolute value of the angle of inclination. It performs the same functions in the ordinal theory of utility as marginal utility in the cardinal theory.

Theory of consumer behavior

1. The concept of utility. Marginal utility. Law of Diminishing Marginal Utility.

2. Indifference curve and budget line. Changes in consumer preferences when prices change. Substitution effect and income effect.

3. Market demand for a product and its difference from individual demand. Elasticity of demand.

Utility and marginal utility

Market demand is generated by decisions made by many individuals who are driven by their needs and cash. But in order to distribute your funds among various goods, you need to have some kind of common basis for comparing them. As such a basis in late XIX V. economists accepted utility.

Utility is the ability of a product to satisfy the consumer. Utility is of a purely personal, subjective nature. it will be significantly different for different people.

In order to maximize expected satisfaction, or utility, the consumer must be able to somehow compare the utilities of different goods. Known two approaches to solve this problem - quantitative (cardinalist) and ordinal (ordinalist).

Quantitative approach to utility analysis is based on the idea of the possibility of measuring various goods in hypothetical units of utility (utils). It should be emphasized that quantitative assessments of the usefulness of a particular product set are of an exclusively individual, subjective nature. The same product may be of great value to one consumer and of no value to another. Therefore, the quantitative approach does not provide for the possibility of comparing and summing utility values for different consumers.

The most important concept of consumer theory in the cardinalist approach is utility function– dependence of the utility received by an individual on the volume of food consumption. When modeling consumer behavior using the utility function, a number of simplifying provisions are made:

1. Utility is measured in hypothetical units. utilities, and each person has his own unit of measurement, so the “utilities” of different consumers are incomparable and cannot be summed up.

2. Utility can be both positive (pleasure) and negative (suffering). At zero volumes of food consumption, utility is zero.

3. In the case of consumption of several products, it is believed that the sequence of consumption of different products does not affect the amount of utility: they can be consumed one after another or mixed.

4. If the quantity of a product consumed must be expressed as an integer, then such a product is called indivisible discrete. If the quantity of a product consumed can be expressed in any fractional number, then such a product is called divisible, and the utility function of such a product is continuous. As a first approximation, it is usually assumed that the utility function is continuous.

5. Consumed products are, to one degree or another, capable of replacing each other. This means that a decrease in the consumption of one product can be compensated by an increase in the consumption of another product in such a way that the value of utility remains the same.

6. The consumer's goal is to maximize utility at a given cost.

Marginal utility- This is the additional utility extracted by the consumer from an additional unit of a specific product.

The marginal utility of each subsequent unit of production is less than the previous one, since the need for this product is gradually satisfied (“saturated”). =>

=> Law of Diminishing Marginal Utility (Gossen's First Law): Starting from a certain point, additional units of each product will bring the consumer ever-decreasing additional satisfaction, that is, marginal utility decreases as the consumer acquires additional units of a particular product. In other words, as the consumption of any one good increases (while the volume of consumption of all others remains unchanged), the total utility received by the consumer increases, but increases more and more slowly (see the left figure). From the seller's point of view, it is diminishing marginal utility that forces him to reduce the price in order to induce buyers to purchase more of the product.

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INTRODUCTION

The theory of ultimate usefulness or ultimate izdemrzhek - a concept in political economy that arose in the last third of the 19th century, is a counterweight to the theory of labor value of K. Marx. The theory was developed by representatives of the Austrian school: K. Menger, E. Böhm-Bawerk, F.f. Wieser, J. Schumpeter, as well as L. Walras (Lausanne School) and W. S. Jevons.

The main provisions of the theory of marginal utility were formulated by G. G. Gossen in a long-forgotten work of 1844, and the beginning of the massive penetration of marginalist ideas into economic literature should be attributed only to the mid-1880s. The term “marginal utility” (German Grenznutzen) was first used by F. f. Weezer.

According to marginal utility theory, the value of goods is determined by their marginal utility based on subjective assessments of human needs. The marginal utility of a good denotes the benefit that the last unit of this good brings, and the last good must satisfy the most unimportant needs. At the same time, the rarity of the goods is declared a factor of value. Subjective value is the personal assessment of a product by the consumer and the seller; objective value is exchange proportions, prices that are formed in the course of competition in the market. As the subject's needs are gradually saturated, the usefulness of the thing decreases. Marginal utility theory attempts to provide advice on how to best allocate funds to satisfy needs when resources are limited. Modern economists use the theory of marginal utility, focusing on the study of patterns of consumer demand, supply analysis, market research and pricing at the microeconomic level.

1. ESSENCE OF THE THEORY OF MARGINAL UTILITY

Marginal utility theory is a theory that determines the patterns of consumer behavior in the market, the formation of demand and the type of demand curve. Marginal utility theory establishes the relationship between utility and cost = between supply and demand, defining the general law of pricing. Merkulova I.V., Lukyanova A.Yu. Economics: textbook. - M.: KNORUS, 2010.

As the quantity of a good available to the consumer increases, total utility increases, but at the same time the rate of increase in total utility slows down (Figure 1). If the benefit that satisfies the need for food (i.e. food) is divided into three parts, the first part is conventionally designated 10 units, then when adding the second part, the utility will increase to 18, but not to 20 units, since the intensity of satisfying the need decreases (after all, 10 units have already been consumed and the feeling of hunger is no longer so acute). After the third part, the utility will increase to 24 units. etc. Adding subsequent parts will eventually lead to a certain peak, after which the total utility will begin to decrease.

We plot the quantity of the good horizontally, and the total utility of the good vertically. Point max. shows peak demand saturation.

The graph of total utility shows that if at first the total utility of a good increases, then after the point max. it is decreasing.

Limit utility

The change in total utility is reflected in the marginal utility indicator.

Marginal utility MU is the additional utility obtained from consuming one additional unit of a given good per unit of time.

1. In Marxist theory, a commodity is considered as a product of labor useful to a person, intended for sale. From this definition it follows that:

1) a product is only something that satisfies some human need;

2) a product is something that has been tested by labor; for example, berries in the forest are not a commodity for their gatherer, but can become one after labor has been expended in collecting them;

3) a product is something that is intended for sale.

2. In Austrian economic school(its prominent representative is K. Menger) a commodity is defined as a specific economic good produced for exchange.

TO economic benefits K. Menger refers to those that are the object or result economic activity, and which can be obtained in quantities limited in comparison with needs (see Section IV of the Textbook).

What these definitions have in common is that they view goods as the result of labor. The difference is that the second definition takes into account the relationship between the need for a good and the availability of this good, while the first does not.

Despite the difference in approaches, both schools recognize that both useful products created by labor and gifts of nature tested by labor can become goods. different types services.

Goods can be of either a material or non-material nature.

The product has two properties:

The ability to satisfy any human need;

The ability to exchange for other goods.

The ability of a product to satisfy any human need is called use value. Merkulova I.V., Lukyanova A.Yu. Economics: textbook. - M.: KNORUS, 2010.

Every product has a use value. It satisfies the needs not only of its creator himself, but also of other people, that is, it is a social use value. And the commodity producer himself is interested in it only because it is connected with the ability of the commodity to be exchanged for other goods.

The ability of a commodity to be exchanged for other commodities in a certain quantitative proportion is exchange value.

Value is revealed in exchange value. What is cost?

The question of what underlies exchange and determines the quantitative proportion in which one commodity is exchanged for another was first posed by Aristotle. Subsequently, different economists answered it differently.

According to supporters of the labor theory of value, exchanged goods have a common basis in the form of labor costs, which determine value.

According to proponents of marginal utility theory, utility is the basis of exchange.

Utility is the satisfaction or pleasure that an individual receives from consuming a good or service.

Representatives of the cost concept reduce value to costs.

Let's take a look at these concepts.

The labor theory of value was formed during the 18th and 19th centuries. We find its foundations in the works of the classics of political economy, who determined the value of the labor spent on the production of goods. The labor of a commodity producer is dual. On the one hand, this is work of a certain type. It is characterized by the use of certain tools, certain professional skills of the worker and a very specific result - a certain use value. Therefore, the labor that creates it is called concrete labor. On the other hand, labor is a cost work force in general, regardless of its specific form, a particle of total social labor. It is called abstract labor. It is he who creates value, because it is what is common in the work of various specialists, which allows different use values to be equated to each other.

There were also different views on the measure of value. Smith took labor time as a measure of value; Ricardo - working time for the production of goods in the worst production conditions; Marx defined value by the socially necessary labor time that goes into producing a product under socially normal conditions of production: the average level of skill and intensity of labor.

The theory of marginal utility is most clearly expressed in the works of representatives of the Austrian school: K. Menger, E. Böhm-Bawerk, L. Walras, W. Jevons and others.

Proponents of this concept determine the cost based on the subjective assessments of buyers. And the subjective value of a product depends on 2 factors: on the available supply of a given good (rarity) and on the degree of saturation of the need for it. For example, if you are thirsty and you are in the desert where water is rare, then the first vessel of water is priceless to you. As your thirst quenches, the usefulness of each subsequent additional vessel for you will decrease. The last container of water you consume has the least utility for you.

marginal utility consumption good

2. LAW OF DIMINING MARGINAL UTILITY

The marginal utility curve shows that the utility of parts of a good consumed one after another gradually decreases as the degree of consumer satisfaction increases. If marginal utility is zero, then the good exists in a quantity that can fully satisfy a given need.

The law of diminishing marginal utility was discovered by Heinrich Gossen. It represents the dependence of the value of utility on the current consumption of each additional unit of good, i.e., with a repeated act of consumption, the utility of the product turns out to be significantly lower compared to the initial one.

For example, let the role of the good be a bun. When we eat the first of them, we receive deep satisfaction, especially if there was an urgent need for it. Gradually filling up, economic entity stops consuming it, and its utility begins to fall until it reaches zero, when the consumption process stops. In other words, the law of diminishing marginal utility can be represented on a plane as an inclined curve, convex to the center of the X and Y axes like a demand curve.

The concept of utility maximization is closely related to this law. In order to obtain the greatest total utility from the entire set of consumed goods and services under conditions of limited income, time and other factors, it is necessary to consume each of these goods strictly in such quantities that their marginal utilities in relation to prices are the same value. In other words:

where MU is the marginal utility of each good; R - their prices.

It turns out that the last ruble that a consumer pays for the purchase of, for example, meat, should be exactly the same utility as the ruble spent on the purchase of bread or other goods in the consumer basket. Otherwise, the utility maximization rule is called the consumer equilibrium condition. It turns out that from all the benefits that an economic subject consumes, he remains equally satisfied. In this case, the buyer makes the most rational use of cash own budget and maximizes the benefits of its consumer choices.

CONCLUSION

Modern economic theory has adopted a different approach, according to which the basis of exchange is not value, but utility. In the works of P. Samuelson, B. Clark and other economists, price formation is considered taking into account the influence of additional costs associated with the production of an additional unit of goods (or additional quality of goods). Consequently, there is a close connection between the categories of “cost” and “value”. It is necessary to emphasize that value is a special case of the manifestation of economic value in certain, historically specific conditions. Humanity cannot exist without economic activity, and it, accordingly, without economic value as a unity of purpose (result, i.e. utility) and means (cost). Thus, economic value is the unity of the economic utility of a good and economic costs for its production. In conditions of commodity production, economic value takes the form of value, i.e. is the original category in relation to the latter.

According to the theory of supply and demand, the value of a product can only be manifested in price, i.e. in monetary terms. Therefore, the price is determined by the relationship between supply and demand. This theory complements the theory of labor value, as it links it with the market, price and the mechanism of its formation.

The essence of marginal utility theory is that the value of a good depends on its marginal utility. If the quantity of a good is less than the need for it, then its value increases. As the supply of a given good increases, its value falls to its marginal utility. Therefore, we can say that the theory of marginal utility is a continuation of the theory of supply and demand.

A real scientific discovery was the work of the famous English economist A. Marshall, who tried to move away from the definition of a single source of value and combined the theories of marginal utility, supply and demand, and production costs (costs). Thus, he made a turn in the economic theory of value from substantial analysis to functional analysis, i.e. to determine the simultaneous mutual influence of utility, supply and demand, costs and prices.

Therefore, we can conclude that an economic good includes both a benefit (since the consumer needs it) and a cost (since resources are needed to produce it). These qualities of goods are manifested as their usefulness (since they satisfy our needs), rarity (since their production requires limited resources and resource intensity). When purchasing an economic good, people pay a certain amount of money for it, which is called the price of the good.

Conclusion: Marginal utility is the additional utility that a consumer obtains from one unit of a good or service. It is equal to the change in total quantity of utility divided by the change in quantity consumed.

BIBLIOGRAPHICAL LIST

1. Economic theory. Textbook / Ed. Prof. O, I. Lavrushina, M.: KNORUS 2007.

2. Banking. Textbook / Ed. V.A. Chelnokova - M.: UNITY, 2007

3. Money, credit, banks. Textbook / Ed. Prof. O.I. Lavrushina - M.: KNORUS, 2008.

4. General theory money and credit. Textbook / Ed. Prof. E.F. Zhukova - M.: UNITY, 2007.

5. Merkulova I.V., Lukyanova A.Yu. Economics: textbook. - M.: KNORUS, 2010.

6. Efimova E.G. Economic theory: Workshop. 4th ed., rev. and additional - M.: MGIU, 2009.

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