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What is Utility (definition)? What is Total Utility (definition)? What is Marginal Utility (definition and How is it Calculated ” Formula and example”)?
Sample Answer
Utility, Total Utility, and Marginal Utility
Introduction
In the field of economics, utility is a concept that helps us understand consumer preferences and decision-making. It provides a way to measure the satisfaction or happiness derived from consuming goods and services. In this essay, we will define and explain utility, total utility, and marginal utility, including how to calculate marginal utility.
Utility
Definition
Utility refers to the subjective satisfaction or happiness an individual derives from consuming a good or service. It is a measure of the usefulness or value that a consumer assigns to a particular product.
Utility is a subjective concept, meaning it varies from person to person and cannot be objectively measured. Different individuals may assign different levels of utility to the same good based on their preferences, needs, and unique circumstances.
Total Utility
Definition
Total utility is the overall amount of satisfaction or happiness derived from consuming a certain quantity of a good or service within a given period. It represents the sum of the utilities obtained from each unit consumed.
Total utility increases as the quantity of a good consumed increases, assuming other factors remain constant. However, total utility may exhibit diminishing marginal returns, meaning that additional units of a good provide less additional satisfaction.
Marginal Utility
Definition
Marginal utility refers to the additional utility gained from consuming one additional unit of a good or service. It measures the change in total utility resulting from an increase in consumption by one unit.
Marginal utility plays a crucial role in consumer decision-making. It helps individuals determine how much of a good to consume and how to allocate their limited resources. By comparing the marginal utility of different goods and services, consumers can make choices that maximize their overall satisfaction.
Calculation
Marginal utility can be calculated using the following formula:
Marginal Utility = (Change in Total Utility) / (Change in Quantity)
For example, let’s consider a scenario where an individual consumes three apples and derives the following total utilities:
1 apple: 20 utils
2 apples: 35 utils
3 apples: 45 utils
To calculate the marginal utility of the third apple, we need to compare the change in total utility between consuming two apples and three apples:
Marginal Utility = (45 utils – 35 utils) / (3 apples – 2 apples) = 10 utils
In this example, consuming the third apple provided an additional 10 utils of satisfaction compared to consuming only two apples.
Conclusion
Utility is a measure of satisfaction or happiness derived from consuming goods and services. Total utility represents the overall satisfaction obtained from consuming a certain quantity of a good, while marginal utility measures the additional satisfaction gained from consuming one additional unit. Understanding these concepts and calculating marginal utility allows economists and individuals to make informed decisions regarding consumption patterns and resource allocation.
