Difference Between Total Utility And Marginal Utility

Economics

What is Total Utility?

Total utility is the amount of utility or satisfaction derived after consuming a specific good or service. It is an aggregate amount expressed by the unit utils.

  • Total utility is directly linked with consumer behavior in a specific market.

  • The more the amount of total utility, the more will be the demand for the product in the market. In this manner, total utility is a precursor of the demand-supply chain in marketing.

  • There are multiple tools available in economics using which economists can derive the total utility of consumption of a product. Thereby, the economists can pre-rate the demand for a product in the market using the total utility theory.

  • Total utility is quantifiable via marginal utility. Total utility is expressed as the summation of all marginal utilities until the last item of marginal utility where the latter becomes zero or negative.

  • Total goes on increasing with the additional amount of consumption of a good or a service over the time of consumption.

    For example, for a box of ice cream scoops, the total utility will go on increasing with the consumption of each additional scoop. The total utility, in this case, will be the number of scoops consumed multiplied by the number of scoops.

  • The value of total utility will only increase with additional consumption; it cannot be zero or negative like in the case of marginal utility. Total utility is maximized when the last rupee spent equals or exceeds the marginal utility of additional and possible last product purchase.

What is Marginal Utility?

Marginal utility is defined as the benefit or fulfilment or satisfaction gained from consuming an additional product. According to the concept, the benefit an individual derives from an additional product is inversely related to the number of units he/she already owns. Thus, in the case of marginal utility, the satisfaction or benefit goes on decreasing with each additional consumption.

  • The concept can be illustrated by the same example of a box of ice cream scoops. The satisfaction derived from the first ice cream scoop by an individual will be the greatest because he must be waiting eagerly to consume the scoop.

    However, for the second scoop, the satisfaction will be less than the first one. This will go on until the satisfaction level reaches zero for a specific ice cream scoop. If additional scoops are consumed thereafter, the marginal utility of the consumption will be negative.

  • Marginal utility is also related to demand and supply through the theory of the paradox of value.

    For example, the demand for diamonds is greater than the slice of bread even when the latter is more essential for life. This is so because the marginal utility of a diamond is greater than a slice of bread as it is more scarce. This means that the marginal utility of diamonds is higher and consumers will be ready to pay higher to acquire a piece of diamond than a slice of bread.

    Moreover, as bread is more readily available and people consume enough of it every day, the demand for bread is less than the demand for diamonds. That is why the marginal utility of slices of bread is less than the marginal utility of diamonds. Therefore, the price of diamonds will be higher at any instance than the slices of bread in the market.

Key Differences Between Total Utility and Marginal Utility

The definitions or meanings of total and marginal utilities are different. Let us see the table to understand more.

Categories Total Utility Marginal Utility
Definitions

Total utility refers to the aggregate amount of satisfaction derived from consuming a particular number of goods by an individual.

Therefore, total utility is related to the total consumption of goods or services.

Marginal utility refers to the additional amount of utility derived from using an additional good or service.

Hence, The marginal utility is related to the consumption of each additional amount of goods or services.

Rate of increase

Total utility increases with an increase in each additional consumption. Hence, total utility cannot reach a negative value.

Marginal utility, on the other hand, diminishes with the consumption of each additional good or service. Therefore, the marginal utility may have a value of zero or negative.

Result

Total utility suffers from diminishing returns. It means that after a certain point of saturation, the consumer does not derive any satisfaction from consuming more of the product or service.

Marginal utility on the other hand shows a decrease in satisfaction right from the first consumption and the satisfaction goes on decreasing with each additional consumption.

Conclusion

Both total utility and marginal utility are important concepts in economics which are applied in other fields of study as well. As the theories of utility project consumer choice, they are important for businesses and stakeholders. Without the knowledge of utility, it would be ambiguous to determine and map consumer behavior.

The microeconomic study of total and marginal utilities and the differences between them lead to the idea of demand and supply of goods and services in a given market. Therefore, businesses and societies must pay attention to these two topics of economics to understand the market movements and use them in their favor.

FAQs

Qns 1. What is the common ground between total and marginal utility?

Ans. The common thing about total and marginal utilities is that they both provide an idea of consumer choices. Although the two terms are used to measure different subjects, both are related to the satisfaction derived from using a good or service.

Qns 2. What are utils?

Ans. Utils is a standard unit to measure utility. It is a relative unit as the satisfaction levels derived from consuming a product vary from person to person. Some economists prefer using monetary denominations to the use of utils for this reason.

Qns 3. Why is the derivation of marginal utility important for economists?

Ans. The derivation of marginal utility is important because it shows the demand for a product for an individual customer. In other words, it helps understand consumer choices better.

Qns 4. What is the law of diminishing marginal utility?

Ans. The law of diminishing marginal utility states that the marginal utility diminishes with each additional consumption of a good or service. Therefore, the final marginal utility may have a negative value as well.

Qns 5. What are the relationships between total utility and marginal utility?

Ans. The two relationships between total and marginal utility are:

  • Total utility rises when marginal utility goes down.
  • Total utility is maximum when marginal utility is zero.
raja
Updated on 13-Oct-2022 11:19:47

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