What is Total Utility?

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

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How is Total Utility Used?

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. 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 Maximization

Analysts 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. 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. 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. 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. 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.

How Total Utility Works (Example)

Lets assume that a consumer has two options for purchasing either goods or services. 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. In such a scenario, the consumer will choose the option that has the most utility for money.

The Law of Diminishing Marginal Utility

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

Other Considerations

However, note that although usefulness is one of the utility definition, it is not a quality in economic utility. Water is a good example. It is useful but does not have utility for the majority of the people. It is also subjective, and so, it varies from one individual to the other. In addition, it has a continuous variance that is dependent on the quantity of consumption, until that point when you cannot measure it. The utility is a heuristic tool. It gives economists an opportunity to analyze and talk about the satisfaction level of a service or product.

Related Topics

• Budget Constraint
• Radner Equilibrium
• Opportunity Cost
• Opportunity Set
• Marginal Analysis
• Utility

• Self Interest
• Cost-Benefit Analysis
• Enlightened Self-Interest
• Fisher's Separation Theorem
• Ratchet Effect

• Total Utility (Economics)
• Efficiency Principle
• Expected Utility
• Subjective Theory of Value
• Positional Goods
• Utilitarianism
• Indifference Curve
• Time Preference Theory of Interest
• Incentives
• Marginal Benefit

• Diminishing Marginal Utility
• Sunk Costs
• Production Possibilities Frontier
• Law of Diminishing Returns
• Economic Efficiency
• Efficiency Theory
• Productive Efficiency
• Capacity Utilization Rate
• Allocative Efficiency
• Pareto Efficient
• Comparative Advantage
• Criticisms of the Economic Approach
• Behavioral Economics
• Normative Economics
• Positive Economics
• Invisible Hand
• Sunk cost