School of Economics

Relationship between TU & MU 1-Till MU positive TU increases at diminishing rate. 2-When MU is zero TU is at its maximum. 3-When MU is negative TU starts falling. 4-TU is the sum of MU. 5-MU is the rate of TU. fig-1 For more detail: please watch this video ,subscribe #vc official on youtube.

 Concept of utility: it refers to satisfaction derived from the consumption of a goods. In other words want satisfying power of a commodity is called utility Cardinal measurement of utility:  The great economist Alfred  Marshall said we can measure the satisfaction in terms of cardinal numbers like 1,2,3 etc. And standard unit of measuring the satisfaction is called utils. Total Utility: It is the total number of utils derived from the consumption all units of a goods.Ex- If I consume one chocolate and get 10 utils, and again I consume the same chocolate and get 9 utils then total utils =19 utils.                                                                  TU=∑MU                        Marginal Utility: It refers to change in total utility due to additional consumption of a goods. In other words satisfaction derived from the additional consumption of a goods is called Marginal Utility. Ex- If I consume one chocolate and get 10 utils, and again I consume the same chocolate and

Opportunity cost and marginal opportunity cost Opportunity cost:  It is the cost of availing one opportunity in terms of loss of other opportunity. In other words, it is the cost of shifting resources from one use to the another. It is equal to loss of output in use-1 when resources are shifted from use-1 to use-2. It is also called total opportunity lost. Marginal opportunity cost:  It refers to loss of output of one goods to gain an additional unit of other goods. let's say, if we shift resources from production of goods-y to production of goods-x then we loss 10 units of goods-Y and we gain 2 units of goods-X, then marginal opportunity cost= loss/gain therefore 10/2=5, In easy word, to produce one unit of goods-X we have to sacrifice 5 unit of goods-Y.It is also called marginal rate of transformation. Table-2 Units of Goods-X Units of Goods-Y Opportunity cost Marginal opportunity cost 0 100 - - 10

 Rotation of Production possibility curve: PPC can rotate in following circumstances. 1-Improvement in the technology in the favour of good -X : If there is an improvement in the technology in favour of goods -X then the production of goods-X raise on that the particular resources but production of goods-Y remains the unchanged accordingly PPC rotates. Fig-6 Before the improvement in technology in the favour of goods-X the PPC is ab but after improvement it rotates and be ac. 2-Improvement in the technology in the favour of good -X :  If there is an improvement in the technology in favour of goods -Y then the production of goods-Y raise on that the particular resource but production of goods-X remains the unchanged accordingly PPC rotates. Fig-7 Before the improvement in technology in the favour of goods-Y the PPC is  ab  but after improvement it rotates and be  ac. Note: If any technical improvement done in favour of both goods then PPC will shift, not rotate. For more detail: please

  Shifting of PPC : PPC can shift in following circumstances. Change in resources Change in technology 1-Change in resources:  PPC can shift both rightward or forward and leftward or backward due to change in resources. Change in resources means either increase in resources or decrease in resources. a- Increase in resources:  If resources are increased either quantitative or qualitative we can produce more of both goods thus PPC shift rightward or forward. Figure-3 In fig-3,When resources are increased PPC shift from ab to cd.  b-decrease in resources:  If resources are decreased either quantitative or qualitative we can produce less of both goods thus PPC shift leftward or backward. Figure-4 In fig-4,When resources are decreased PPC shift from cd to ab. 2-Change in technology: When efficient technology comes into existence which are suitable for both goods then we can produce more of both goods thus PPC shift to rightward or forward.  figure -5 in figure 5, when modern technology

 Attainable and unattainable combinations of PPC : Those combination which are lie either on PPC or the inside of PPC are called attainable combinations, but those combinations which are lie outside the PPC are called unattainable combination of PPC.  Figure-2 In the figure-2, A,B,C& Z are attainable combinations of PPC, where combinations A,B,C offer fuller utilisation of resources but combination Z offers underutilisation of resources, while on the other hand combination K is unattainable combination. For more detail: please watch this video ,subscribe #vc official on youtube.