Utility Analysis

Utility analysis is a cornerstone of consumer behavior theory. It defines 'utility' as the want-satisfying power of a commodity. The core concept is the Law of Diminishing Marginal Utility (DMU), which states that the additional satisfaction (marginal utility) a consumer gets from consuming successive units of a commodity goes on diminishing. This law, proposed by Alfred Marshall, is based on assumptions of rationality, cardinal measurement of utility, and continuous consumption. It has significant practical applications in explaining the paradox of value, forming the basis for the law of demand, and guiding fiscal policy.