Difference Between Total Utility And Marginal Utility

Introduction

The primary difference between total and marginal utility is that total utility refers to the total satisfaction acquired by the consumer as a result of consuming various amounts of a product, whereas marginal utility refers to the additional utility derived from consuming an additional unit of the product.

Consumer demand for a product is determined by its usefulness. In product terms, utility refers to a commodity's ability to meet consumer wants. From the consumer's point of view, utility is a psychological sense of satisfaction or pleasure that varies from person to person and is achieved through the consumption of the product or service. Total utility and marginal utility are both quantitative concepts in the subject of utility.

Utility theory is essential for understanding consumer behavior and decision-making. Total utility and marginal utility are key concepts used to determine the satisfaction derived from the consumption of goods and services. They provide light on the relationship between quantity consumed and subsequent levels of satisfaction.

What is Utility?

Utility is a measure of the satisfaction or value that an individual derives from using a product or service. It is a concept in economics that helps us understand and analyze customer behavior and preferences. Utility is subjective and differs from person to person. It is influenced by variables such as preferences, tastes, money, and the availability of alternatives. Consumers frequently try to maximize their utility by making selections that provide them with the greatest enjoyment or benefit, given their limitations, such as budget constraints.

What is Total Utility?

Total utility is the overall enjoyment that a consumer receives from the consumption of certain goods and services. Each unit of product or service has its marginal utility.

The overall utility of all such individual objects is determined by adding their marginal utilities.

A customer's primary concern is to obtain the greatest quantity of utility at the lowest possible cost. To understand total utility, one must first consider the law of diminishing marginal utility. It claims that when more units of a single commodity or service are consumed, the additional pleasure known as marginal satisfaction decreases. The first good consumed has the greatest marginal utility, the second is slightly lower, and so on.

Total Utility can be expressed as:

TUn = Ux + Uy + Uz or TU = ƩMU

Where,

• TU = Total Utility
• n = Number of commodities
• Ux, Uy, Uz = Total respective utilities of consumption of goods
• MU = Marginal Utility

What is Marginal Utility?

Economists use the phrase "marginal utility" to describe the amount of satisfaction gained by consuming additional units of a good or service. This concept is important for determining how many units of a product a customer is willing to purchase.

Marginal utility is used to calculate how satisfaction levels influence a customer's purchasing decision.

Positive marginal utility arises when the consumption of an extra item raises the total utility. Negative marginal utility takes place when consuming an extra item reduces the item's total utility.

It can be expressed as:

MU = ∆TUx / ∆Qx

Where,

• MU = Marginal Utility
• ∆TUx = Change in Total Utility
• ∆x = Change in quantity of the product consumed

An alternative way of expressing marginal utility when (n) is the number of units consumed can be given as:

MUn = TUn - TUn-1

Calculation and Concept

• The total utility is calculated by adding the marginal utilities of all units of a good or service consumed. For example, if a person consumes three apples with marginal values of 10, 8, and 6, the total utility will be 10 + 8 + 6 = 24.
• Marginal utility is calculated as the change in total utility caused by consuming an additional unit of a good or service. The equation is commonly written as ΔTU/ΔQ, where ΔTU is the change in total utility, and ΔQ is the change in quantity consumed.

Relationship Between Total Utility and Marginal Utility

The total utility and marginal utility are closely connected. The marginal utility of each additional unit consumed is added to the total utility. The relationship between the total utility and marginal utility is:

• When the value of the marginal utility is positive, the total utility increases.
• When the marginal utility is zero, the total utility is maximized.
• When the value of the marginal utility is negative, the total utility decreases.

Importance and Application

The ideas of total utility and marginal utility have significant consequences in economics.

They help explain consumer behavior, analyze the demand for goods and services, and determine the economic value that individuals place on various goods.

Understanding the relationship between total utility and marginal utility is useful for making informed judgments about resource allocation, pricing methods, and customer preferences.

It also serves as the foundation for ideas such as consumer surplus, which may help businesses enhance customer satisfaction.

Comparison Chart

Conclusion

Total utility and marginal utility are key concepts in economics that explain customer happiness and decision-making. Total utility is the total satisfaction from consuming a specific number of goods or services, whereas marginal utility is the additional satisfaction from consuming one more unit. These concepts are connected because marginal utility adds to total utility, which initially rises but later falls according to the law of declining marginal utility. Understanding these principles helps analyze customer behavior, product demand, and optimal resource allocation. They play an important role in developing economic policies and pricing tactics and increasing customer happiness by providing information on consumer preferences and behavior.