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Total vs. Marginal Utility: What You Need to Know

Have you ever wondered why you choose to buy one item over another? Or why do you feel satisfied with some purchases but not others? 

Total utility refers to the total satisfaction or usefulness derived from consuming a certain quantity of a good or service, while marginal utility refers to the additional satisfaction or usefulness gained from consuming one more unit of the same good or service.

Total vs. Marginal Utility

Total UtilityMarginal Utility
Total Utility refers to the total satisfaction or usefulness derived from consuming a certain quantity of a good or service.Marginal Utility refers to the additional satisfaction or usefulness gained from consuming one more unit of the same good or service.
It is calculated by summing up the marginal utilities of all units consumed.It is calculated as the change in total utility resulting from consuming one more unit.
Total Utility has a positive and increasing relationship, but at a decreasing rate.Marginal Utility has a positive and decreasing relationship, and can eventually become negative.
It is graphed as an upward-sloping curve.It is graphed as a downward-sloping curve.
Total Utility is useful in determining the optimal level of consumption for a particular good or service.Marginal Utility is useful in determining how much of a particular good or service to consume beyond the current level.
An example of Total Utility would be the total satisfaction derived from consuming the whole pizza.An example of Marginal Utility would be the additional satisfaction derived from consuming one more slice of pizza.
The formula for Total Utility is TU = MU1 + MU2 + MU3 + … + MUn.The formula for Marginal Utility is MU = (TU2 – TU1) / (Q2 – Q1), where TU stands for Total Utility, MU stands for Marginal Utility, and Q stands for Quantity.

Introduction to total and marginal utility

The utility is the satisfaction or benefit that a person receives from consuming a good or service. It is often measured by how much of a good or service a person consumes.

Total utility is the total satisfaction that a person receives from consuming all of the units of a good or service.

Marginal utility is the extra satisfaction that a person receives from consuming one more unit of a good or service.

Similarities between total and marginal utility

  • Both concepts deal with the utility that a consumer derives from a good or service.
  • Both concepts can be used to analyze different aspects of consumer behavior – for example, how much utility a consumer gains from consuming an additional unit of a good or service.
  • Both total and marginal utility approach the concept of utility from different perspectives. The total utility looks at the overall utility that a consumer gets from consuming all units of a good or service, while marginal utility focuses on the change in utility that a consumer experiences when they consume an extra unit of a good or service.

How is total and marginal utility used in economics?

Consumers make choices based on utility. They compare the marginal utility of different goods and services in order to decide which one will give them the most satisfaction. For example, if the marginal utility of food is higher than the marginal utility of clothing, the consumer will choose to purchase food.

Businesses also use marginal and total utility when making decisions. They consider the marginal utility of different inputs in order to decide which ones will maximize their profits. For example, if the marginal utility of labor is higher than the marginal utility of capital, the business will choose to hire more workers instead of investing in machinery.

Examples of total and marginal utility

For example, imagine that you are very thirsty and you have a can of soda. The first sip of soda will give you a lot of satisfaction (utility). The second sip will also give you some satisfaction, but not as much as the first sip. This is because your thirst is partially quenched after the first sip. The third sip will give you even less satisfaction than the second, and so on. So, the marginal utility of each successive can of soda decreases.

On the other hand, if you are very hungry and you have a piece of bread, the first bite will give you some satisfaction (utility). The second bite will also give you some satisfaction, but probably more than the first bite because you are hungrier. And so it goes with each successive bite until the bread is gone and your hunger is satisfied. In this case, the marginal utility of each successive bit of bread increases.

Key differences between total and marginal utility

  • Total utility is the amount of satisfaction or pleasure that a person gets from consuming a good or service. Marginal utility is the additional satisfaction or pleasure that a person gets from consuming one more unit of a good or service.
  • First, total utility represents the overall satisfaction that a person gets from consuming a good or service, while marginal utility represents the additional satisfaction that a person gets from consuming one more unit of a good or service.
  • Second, total utility increases at a diminishing rate as more units of a good or service are consumed, while marginal utility decreases as more units of a good or service are consumed.
differences between total and marginal utility

Conclusion

By recognizing how they differ in terms of cost, benefit, and overall satisfaction, you can ensure that you are making optimal choices when it comes to your finances. Total utility is a measure of the whole picture while marginal utility looks at individual items or units. Knowing this information ensures that you have everything you need to make informed choices about your money and investments.

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