Total and marginal utility
Definition
Utility: the satisfaction or benefit a consumer gains from consuming a good, scored in notional units called utils rather than in money.
Total utility: the overall satisfaction from consuming a given quantity of a good in a period.
Marginal utility: the addition to total utility from consuming one more unit.
Scoring satisfaction in utils lets us track how much each successive unit adds, which is the key to explaining how a consumer chooses.
Calculating utility
Marginal utility:
MU=ΔTUΔQ MU = \dfrac{\Delta TU}{\Delta Q} MU=ΔQΔTU- Marginal utility is the change in total utility ÷ the change in quantity, so it isolates the effect of the next unit alone.
- For whole units this is simply the rise in total utility when one more unit is consumed.
- Total utility is recovered by adding (+) the marginal utilities of every unit consumed so far.
- Setting the figures out in a utility schedule makes the pattern clear.
Example
- A student buys £2 slices of pizza; total utility for the first three slices is 10, 18 and 24 utils.
- The 3rd slice adds only 6 utils, fewer than the 8 utils from the 2nd, so satisfaction still rises but more slowly.
- Summing the marginal utilities (10 + 8 + 6) rebuilds total utility of 24 utils, confirming the two measures are linked.
How they move together
- Total utility rises while marginal utility is positive (+), because each unit still adds satisfaction.
- Total utility reaches its maximum when marginal utility = 0, as the last unit adds nothing.
- Total utility falls once marginal utility turns negative (−), because extra units now reduce satisfaction, like one pizza slice too many.
- A falling marginal utility does not by itself mean total utility is falling; it only means total utility rises more slowly.
Note
- Marginal utility can be read as the slope of the total utility curve.
- The peak of total utility lines up with the point where marginal utility = 0.
Exam technique
- Find marginal utility as the change in total utility per extra unit.
- Lay out a schedule so the falling pattern of marginal utility is obvious.
- State that total utility peaks when marginal utility = 0.
Common Mistake
- Do not confuse total utility with marginal utility.
- Do not assume marginal utility must be negative once total utility stops rising; it is 0 at the peak.
Self review
- What is utility, and in what units is it measured?
- What is the difference between total and marginal utility?
- How do you calculate marginal utility from a total utility schedule?
- When is total utility at its maximum?
- When does total utility begin to fall?
