Total Utility vs Marginal Utility
Utility is a term in economics used to describe satisfaction and fulfillment that a consumer derives from consuming a particular product or service. Total utility and marginal utility are two concepts that need to be discussed in order to understand fully how a consumer derives satisfaction by consuming the product or service. The following article provides a clear overview of total utility and marginal utility and explains the differences and similarities between the two.
What is Total Utility?
Total utility is the aggregate or total satisfaction that a consumer receives through consuming a specific good or service. According to classical economic theory, all consumers strive to obtain the highest total utility from the product or service that they consume. The total utility derived from the consumption of goods and services grows less with the consumption of additional units of the same product or service. Total utility is the total of both the initial satisfaction that is derived from consuming a product, and the marginal utility or additional satisfaction that is derived from consuming more units of the same product. Understanding total utility is important when trying to maximize customer satisfaction from the time the product is first used to the last consumption. Firms develop creative marketing and advertising campaigns to show the varying ways in which the same product can be consumed in order to increase the product’s marginal utility, and thereby increase the total utility of the product.
What is Marginal Utility?
Marginal utility refers to the additional satisfaction or fulfillment that a consumer derives from consuming additional units of a particular product or service. Marginal utility is an essential concept in the study of economics as it determines how much of the same item a consumer will buy. A positive marginal utility will be derived when consumption of additional units of the same product or service increases the total utility. Negative marginal utility occurs when the consumption of an additional unit of the same product or service reduces the overall total utility. This is also known as the concept of diminishing marginal returns. A good example for diminishing marginal utility is that an individual who is extremely thirsty would derive high satisfaction from a cool glass of lemonade. The individual may not derive the same level of satisfaction with the 2nd glass, and with the subsequent 3rd and 4th glasses of lemonade. As no additional satisfaction will be derived from the 3rd and 4th glasses, this will lead to zero marginal utility. Zero marginal utility is when consumption of additional units does not result in additional satisfaction with no change to the total utility.
Total Utility vs Marginal Utility
Utility is a concept in economics that explains the level of satisfaction that a consumer derives from the consumption of a particular product or service. Marginal utility is the additional satisfaction that a consumer derives from each additional unit consumed from the same product or service. As each unit of the product will have its own marginal utility, the total of all marginal utilities and the initial satisfaction derived from consuming the product will make up the total utility of a product. The aim of any firm is to increase both marginal utility and total utility of the products and services that they sell.
What is the difference between Total Utility and Marginal Utility?
• Utility is a term in economics used to describe satisfaction and fulfillment that a consumer derives from the consuming a particular product or service.
• Total utility is the aggregate or total satisfaction that a customer receives through consuming a specific good or service.
• Marginal utility refers to the additional satisfaction or fulfillment that a customer derives from consuming additional units of a particular product or service.
• As each unit of the product will have its own marginal utility, the total of all marginal utilities and the initial satisfaction derived from consuming the product will make up the total utility of a product.