Total Utility

What is total utility?

Total utility is the total satisfaction or happiness a consumer derives from consuming a given quantity of a good or service. It aggregates the utility from each unit consumed and helps explain consumer choices and demand.

Utility, marginal utility, and rational choice

• Utility: a subjective measure of satisfaction from consumption.
• Marginal utility (MU): the additional satisfaction from consuming one more unit of a good.
• Rational choice theory: consumers are assumed to make decisions that maximize their total utility given budget constraints. Economists often express utility in hypothetical units called utils to compare outcomes.

Law of diminishing marginal utility

The law of diminishing marginal utility states that as a person consumes more units of the same good, the additional satisfaction gained from each extra unit tends to fall. Thus:
– The first unit typically provides the highest MU.
– Each subsequent unit usually adds less MU.
– When MU becomes negative, further consumption reduces total utility.

How to calculate total and marginal utility

Basic relationships:
– Total utility (TU) = sum of utility from each unit = U1 + U2 + U3 + …
– Equivalently, TU_n = MU1 + MU2 + … + MUn
– Marginal utility: MU = change in total utility ÷ change in quantity
– MU_n = TU_n − TU_(n−1)

Notes:
– Utils are ordinal and hypothetical; utility is subjective and varies by individual.
– TU increases while MU is positive; TU falls when MU becomes negative.

Maximizing total utility

Consumers maximize satisfaction by allocating spending to goods that yield the greatest utility per dollar, given their budget. When comparing options at the same price, consumers choose the one that provides higher utility.

Example

Imagine John eats chocolate bars:
– After 1 bar: TU = 20 utils
– After 2 bars: TU = 25 utils
– After 3 bars: TU = 27 utils
– After 4 bars: TU = 24 utils

Interpretation:
– TU rises from 20 → 27 utils across the first three bars as MU remains positive but declining.
– The fourth bar reduces TU (27 → 24) because MU is negative—John becomes worse off (e.g., feels sick).

Key takeaways

• Total utility measures aggregate satisfaction from a quantity of a good; marginal utility measures the change from one more unit.
• The law of diminishing marginal utility explains why MU typically falls as consumption increases.
• Consumers are modeled as maximizing total utility within budget constraints, choosing units that provide the highest utility per cost.
• Utility is subjective and typically represented by hypothetical units (utils) for comparative analysis.