So, for consumers to ensure that they maximize total utility, they will always seek to attain different mixtures of products as well as services. The reason is that the marginal utility of what money can buy declines. For instance, although you may want to accumulate wealth, every dollar you accumulate becomes less each day. Generally, there is a decline in marginal utility in every product or service you decide to have, and this includes money. It reaches a point when you will not desire it anymore, meaning that the desire to eat it will be zero. You will still enjoy the second scoop, but this time around, it will give you little satisfaction. The first scoop you eat will you the greatest satisfaction. For example, lets assume that you like ice cream and you decide to buy some. In other words, utility declines with each additional unit of the same product or service. The second time you consume it, the marginal utility will be lesser, and so on. Note that the first good or service you consume will give you the highest marginal utility. The law states that the more you consume a particular product or service, the more the additional satisfaction drops. In order to understand better what total utility is, you first have to learn what the law of diminishing marginal utility is. In such a scenario, the consumer will choose the option that has the most utility for money.

The two options presented to the consumer are of the same cost, and at the same time, none of the options is more functional or necessary than the other. Lets assume that a consumer has two options for purchasing either goods or services. Note that to maximize utility, the marginal utility of the money you spent on a product or service, should be equal to or exceed the marginal utility of purchase that you could have made.

For instance, if purchasing a larger quantity of one item results in smaller marginal utility than when you spent the money to acquire another item, it means that the marginal utility will be less compared to purchasing the other item. So, what total utility does is to ensure that it maximizes resources by allocating them to services or products, where marginal utility equals each other. The reason is that people have scarce resources, but at the same time, have a desire to achieve the possible maximum satisfaction from the consumption of products and services. Total Utility MaximizationĪnalysts who use classical economic theory to analyze consumer activities believe that the goal of every consumer is to attain the largest utility at the possible lowest cost. Besides demand theory and consumer theory, the action of a consumer is directed toward utility maximization, where a consumer tries to achieve the best possible satisfaction at the most reasonable cost. Total utility is basically the maximum happiness that a consumer experience after having an experience with a particular product or service through its life span.

Back to: ECONOMIC ANALYSIS & MONETARY POLICY How is Total Utility Used? So, the total utility is simply an individuals sum of units of all the marginal utilities. Note that every consumer unit of product or service has a marginal utility of its own. Economic analysts use it to analyze consumer preferences in the marketplace. Total utility refers to the amount of satisfaction that a consumer derives from a specific product or service.

Marginal unity definition