Total Utility and Marginal Utility

Characteristics of Utility

1. Utility is subjective- it is determined by an individual’s subjective assessment of the amount of satisfaction he or she is expected to derive from a product.
2. Utility is not measurable -Since utility is subjective, it can’t be assessed objectively, much like satisfaction. However, other economists, such as Marshall, believe that utility can be measured.
3. Utility is relative in nature -Due to its subjective character, utility is not absolute but relative. It is dependent on a person’s wants. The usefulness of an item to a person is determined by his level of desire for it; the higher the need, the higher the utility. As a result, utility differs from person to person, location to location, and time to time.
4. Utility is different from usefulness -Utility does not indicate that anything is useful. Even if a commodity isn’t useful, it can still have utility. Smoking, for example, may have detrimental effects, yet it still has utility as long as it satisfies a smoker’s need to smoke.
5.  There are no ethical, moral, or legal aspects to utility.

Total Utility

The complete satisfaction received by a person from the consumption of a given amount of an item, such as mangoes, is known as total utility. To put it another way, total utility is the sum of all the utilities derived from all the units of an item consumed. For example the total utility of eating two mangoes, is the complete satisfaction that these two mangoes provide.

Marginal Utility

The additional satisfaction received from the consumption of an additional unit of a commodity is referred to as marginal utility. It’s an increase in overall utility derived by consuming one extra unit of a commodity.  For example, the marginal value of consuming a third mango, is the increase in overall utility when the number of mangoes consumed increases from two to three.

Difference Between Total Utility and Marginal Utility

1. Total Utility refers to a person’s overall benefit from the use of commodities and services. The amount of utility derived by a person from the consumption of each subsequent unit of an item is referred to as marginal utility.
2. In general, as more and more of a commodity is consumed, the total utility rises. In contrast, the marginal utility of a commodity diminishes with each additional unit consumed.
3. There is a point of saturation where the consumer no longer derives satisfaction from the consumption of the commodity. Once that point is reached, the customer no longer gains satisfaction from the consumption of the commodity. This demonstrates that diminishing returns actually reduce utility. Unlike marginal utility, which decreases with each new unit of the commodity consumed, total utility increases with each additional unit of the commodity consumed.

Relationship Between Total Utility and Marginal Utility

1. The total utility curve is concave from above which reflects the negative slope of the curve, which means diminishing marginal utility. Thus, up to a certain point, the TU curve has a positive slope, but its slope goes on decreasing steadily as the quantity of the commodity consumed increases. This reflects that when total utility increases, marginal utility is positive. Since total utility increases at a decreasing rate marginal utility keeps on falling.
2. When total utility is maximum, marginal utility is zero. When the total utility curve reaches its maximum, marginal utility is zero. This means the consumer has reached the point of saturation.
3. After the point of saturation, the total utility curve’s slope becomes negative, indicating that marginal utility is negative. As a result, when total utility decreases, marginal utility decreases as well.

Conclusion

In objective terms utility may be defined as the amount of satisfaction received from the consumption of an item. Total Utility refers to a person’s overall benefit from the consumption of commodities and services. The amount of utility derived by a person from the consumption of each subsequent unit of a commodity is referred to as marginal utility. In general, when more of a commodity is used, the total utility rises.