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Concept: Service utility. 

Explanation : When service is provided by one person to another, it is called service utility. It includes services rendered by professionals like doctors, lawyers, teachers, etc. In this case, a beautician has given service to Aditi.

So, it is an example of service utility.

Paradox of values – The concept of value paradox is introduced by Adam Smith. 

The term value has two meanings :

(i) Value in use 

(ii) Value in exchange 

Some goods have greater value in use but smaller value in exchange e.g. water.

However, some goods have smaller value in use but greater value in exchange e.g. diamond.

So, paradox of value is also called as water-diamond dilemma.

Greater value in use denotes high total utility whereas, greater value in exchange shows high marginal utility.

Thus, the concept paradox of value is very useful to understand the concepts of utility i.e., Total Utility & Marginal Utility.

Concept : Possession utility. 

Explanation : When the ownership of a product changes from seller to buyer, it is called possession utility.

In the given example, ornaments are purchased by Nilesh for his sister. Ownership of a product changed, so it is an example of possession utility.

Types of utility : Time utility, possession utility, service utility and place utility.

Examples :

• A dentist giving dental treatment to a patient. 
• A mountaineer using oxygen cylinder at a high altitude. 
• A farmer selling rice stored in the warehouse at the end of the season. 
• A retail trader purchasing 100 chairs from the wholesale trader.

Wrong pair : Total utility – Utility from last unit

Wrong pair : Law of DMU Explained by Prof. Gossen

Critical evaluation of the Law of DMU is as follows:

(1) Unrealistic Assumptions : The law of DMU is based upon some unrealistic assumptions like homogeneity, continuity, rationality, constancy, etc.

In reality, it is very difficult to fulfil all these ssumptions at a time.

(2) Cardinal Measurement – not possible : The law assumes that, utility is cardinally measurable. It is necessary for the law to express schedule indicating MU and TU. It helps to add, subtract and compare utilities, In the real sense, utility is a psychological concept so it cannot be measured cardinally i.e. in numbers.

(3) Not applicable to Indivisible Goods : The law assumes divisibility. So it is not applicable to indivisible or bulky goods like car, T.V. set, house, etc. which are not divisible. It is not possible to compare MU from commodity which are normally purchased, once in a life time.

(4) Constant MU of Money: The law assumes that MU of each unit of money is constant. But, in reality, MU of money declines as its stock increases.

Critics also argue that MU of money differs from person to person. It is affected by changes in price level, stock of money, rate of interest, etc.

(5) Restricted to satisfaction of Single Want : The law of DMU has limited applicability. It analyses the satisfaction derived from single want.

In reality, human wants are multiple in nature i.e. a person has to satisfy many wants at a time.

Though, law of DMU is criticized, it is important and popular in economics, because it explains economics behavior of a rational consumer.

Correct option: (b) MUX = Px

Correct option: (b) multi-purpose

Yes, I agree with this statement.

It is a psychological concept. It is the mental assessment of a commodity.

So utility differs from person to person because of difference in taste, preference, likes and dislikes of a person e.g., Chalks have more utility to a teacher than a student.

Yes, I agree with this statement.

Utility is morally colourless concept.

As long as a commodity possesses the want satisfying power, it has utility for a person irrespective of the fact that the commodity is good or bad, desirable or undesirable, moral or immoral.

e.g., Knife has the utility for both a killer (for stabbing) and a housewife (as kitchen appliance).

Similarly liquor has utility to a drunkard but from ethical point of view their consumption may be undesirable .

Form Utility :

1. Form utility arises when the structure of given material changes. 

2. E.g. Furniture made out of wood. 

3. Technology and intelligence creates form utility.

Time Utility:

1. Time utility is created by changing the time of utilisation. 

2. E.g. Wheat stored during harvest season and released during off season.

3. Warehousing creates time utility.

Knowledge Utility: 

1. Knowledge utility arises when a person acquires knowledge regarding a product.

2. Use of mobile, computer, etc. creates knowledge utility. 

3. In this case, a consumer is interested to know various functions of product. 

4. Knowledge utility increases due to utilisation.

Possession Utility: 

1. Possession utility arises when the ownership of a product is transferred from one person to another. 

2. Sale and purchase of goods creates possession utility. 

3. In this case, a consumer is interested to satisfy his wants. 

4. Possession utility increases due to demand.

Form Utility :

1. Form utility arises when the structure of given material changes. 

2. Furniture made out of wood is an example of form utility.

3. It is related to material welfare. 

4. Form utility is mainly created by artisans like tailor, carpenter, etc.

Service Utility :

1. It arises when service is rendered by one person to another. 

2. Knowledge given by teacher to student is an example of service utility. 

3. It is related to non-material welfare. 

4. Service utility is mainly created by professionals like doctor, lawyers, etc.

Correct option: (4) none of these

Correct option:(2) a, b, c

Correct option: (2) b, d

Correct option: (1) a, d,

Correct option: (3) d

(1) Place Utility 

(2) Total Utility 

(3) Negative MU 

(4) Cardinal measurement 

(5) Full satisfaction 

(6) Place utility 

(7) Utility 

(8) Exception of law of DMU 

(9) Marginal Utility 

(10) Government

Correct potion: (c) total utility

(1) Date utility 

(2) Indivisibility 

(3) Additional 

(4) Maximum TU 

(5) Developing 

(6) Rational consumer

(1) Utility 

(2) Service Utility 

(3) Possession Utility 

(4) Marginal Utility 

(5) Total Utility 

(6) Disutility 

(7) Form Utility 

(8) Satisfaction

(9) Want 

(10) Intensity

Correct option: (a) intensity of want

Yes, I agree with this statement.

Utility for a commodity is dependent on the intensity of need for that commodity.

If a want is very intense or urgent for the commodity concerned then he will find more utility from the commodity.

As the intensity of want falls, its utility diminishes. 

For example first slice of bread will give more utility to a hungry person than the 2nd or 3rd slice of bread. Books have more utility to students just before exams and no utility after the exams.

Yes, I agree with this statement.

Utility relates to consumer’s mental attitude and experience regarding a given commodity.

So utility differs from person to person.

The utility of a good cannot be the same for all individuals.

This is due to difference in taste, preference, likes and dislikes.

E.g. fish has utility to non-vegetarian but not to a pure vegetarian.

Yes, I agree with this statement.

Utility indicates the power of a good to satisfy human wants irrespective of whether it is good or bad or harmful. Whereas usefulness means that the commodity is beneficial or desirable. A commodity may have utility but may not be useful e.g., Cigarette is injurious to health. It is not useful but it has utility to a smoker.

Concept : Place utility.

Explanation : When utility arises due to change in the place of its utilisation, it is called place utility.

Transport of goods creates place utility. In this example, bricks are transported from place of production to place of utilization. So it is an example of place utility.

Concept : Successive consumption. 

Explanation : To experience the law of DMU, there should be consumption of units of commodity, without time gap. It is called successive consumption. 

The given example explains that five oranges are consumed by Kavita one after another without interval of time.

Concept : Disutility. 

Explanation : When the want is fully satisfied, a consumer realises full satisfaction i.e. point of satiety. 

But, beyond this point, he experiences negative utility. So, he refuses to consume any more unit of commodity. If consumption continues, it results into disutility.

Option : (IV) only b

Yes, I agree with this statement.

The law of DMU has universal applicability so it is an important law in economics.

Importance or significance of the law of DMU is as follows : 

(1) Useful to Consumers : The law is important to the consumer because it helps the consumer to maximize his satisfaction. It creates awareness among the consumers 5 to get maximum satisfaction with limited resources.

(2) Useful to the Government : The law ; guides the government in framing various economics policies like progressive tax policy, pricing policy, trade policy, import export policy, etc. so as to maximise economic welfare of the society.

(3) To understand Paradox of Value : The law of DMU helps us to understand paradox of values, i.e. value-in-use and value-inexchange.

Some goods have more value-in-use but less value-in-exchange like air, water, sunlight, etc. while some goods have less value-in-use but high value-in-exchange like gold, diamond, etc. Greater value-in-use denotes high total utility whereas, more value in exchange denotes higher marginal utility.

(4) Basis of Law of Demand : The law of demand is based on the law of DMU. A consumer compares MU with price of a commodity. He purchases till MU equals price. When a consumer buys more and more units of a commodity, his MU diminishes. It means, a consumer would buy more only at a lower price which is a basis of law of demand.

Concept: Time utility.

Explanation : When Utility of a commodity increases during particular time period, it is called time utility.

Tanvi is using umbrella, when it is raining Ans. so, it is an example of time utility.

Option : (b) remains constant

Correct option: (3) 1 – c, 2 – a, 3 – e, 4 – b.

Option : (c) TU is maximum and MU is zero.

Option : (c) falling

Types of utility :

1. Form utility

2. Place utility 

3. Service utility 

4. Knowledge utility 

5. Possession utility 

6. Time utility

Types of utility are explained as under:

(1) Form utility : It arises due to a change in the shape of an object. When utility is created because of change in the structure or form of a given material, it is known as form utility. E.g. furniture made of wood, dress from cloth, jewellery from gold, etc.

(2) Place utility : Utility changes from place to place. When utility arises due to change in the place of its utilisation, it is called as place utility. Transport of goods and services creates place utility.

E.g. utility of river water increases when it is diverted towards farm. Shawls have greater utility in cold regions than any other place.

(3) Service utility : When service is provided by professionals to another person, it creates service utility. It includes services rendered by Doctor to patient, Lawyer to client, Teacher to student, etc.

(4) Knowledge utility : In this case, utility increases when a person acquires knowledge regarding specific product.

For example, when a consumer knows about various functions of a laptop, its utility increases, Similarly, use of mobile, computer, sewing machine etc. creates knowledge utility.

(5) Possession utility : It is related to the ownership of goods. When the ownership of a product is transferred from one person to another, it creates possession utility. 

E.g. transfer of ownership of food grains from farmer to consumer.

Thus, possession utility arises when goods are transferred from sellers to buyers.

(6) Time utility : When utility of a commodity changes due to change in time period, it is called time utility.

E.g. an umbrella has greater time utility during rainy season.

Time utility also takes place when goods are stored and used as per the requirement. Time utility varies from season to season or from situation to situation.

So, blood donation creates time utility.

The law of DMU has universal applicability so it is an important law in economics. 

Importance or significance of the law of DMU is as follows :

(1) Useful to Consumers : The law is important to the consumer because it helps the consumer to maximize his satisfaction. It creates awareness among the consumers 5 to get maximum satisfaction with limited resources.

(2) Useful to the Government : The law ; guides the government in framing various economics policies like progressive tax policy, pricing policy, trade policy, import export policy, etc. so as to maximise economic welfare of the society.

(3) To understand Paradox of Value : The law of DMU helps us to understand paradox of values, i.e. value-in-use and value-inexchange.

Some goods have more value-in-use but less value-in-exchange like air, water, sunlight, etc. while some goods have less value-in-use but high value-in-exchange like gold, diamond, etc. Greater value-in-use denotes high total utility whereas, more value in exchange denotes higher marginal utility.

(4) Basis of Law of Demand : The law of demand is based on the law of DMU. A consumer compares MU with price of a commodity. He purchases till MU equals price. When a consumer buys more and more units of a commodity, his MU diminishes. It means, a consumer would buy more only at a lower price which is a basis of law of demand.

Option : (b) cardinal

• A stethoscope has utility for a doctor. 
• A net has utility for a fisherman. 
• A thermometer has utility for a nurse.
•  A cow has utility for a farmer. 
• Cooking gas has utility for a housewife. 
• A scissor has utility for a barber. 
• Wood has utility for a carpenter. 
• Needle has utility for a tailor. 
• Mud has utility for a potter. 
• A pen has utility for a writer. 

Yes, I agree with this statement.

• Utility is want satisfying capacity of a commodity and happiness is an enjoyable experience.
• When a commodity has utility it may not necessarily give happiness or pleasure or enjoyable experience to consumer. E.g., no one enjoys taking an injection or bitter medicine but they have utility to a patient.