Marginal utility total utility and diminishing marginal utility

Marginal utility total utility and diminishing marginal utility are the key concepts of micro-economics asked in the curriculum of higher secondary school. Utility analysis means how and how much satisfaction or benefits the given person derives from the commodity he chose.

Meaning of utility in microeconomics

In simple terms, utility is the satisfying power of any given commodity you chose. How much satisfaction or benefits you receive or derive from the commodity, is called the utility of the commodity. For more clarity, it is the degree of satisfaction of your want by the commodity you consume.

Suppose, you always prefer to eat ice cream after breakfast in summer. Instead to eat ice cream, if you eat samosa, you will not get that much of satisfaction compare to ice cream. Simply, ice cream has more satisfying power of your wants.

Utility as subjective and relative concept

Actually, utility of a commodity may not be same in respect to time, place, and nature of given person. For example, ice cream has great satisfying power of wants in summer than winter. At the same time, in colder regions, the woollen clothes derive more benefits and value than in hot, dry deserts.

Similarly, the satisfying power of commodity isn’t the same for everyone. Some people may derive more, while other may not. It means that same commodity may offer different degree of satisfaction or benefits for different people without change in content.

Utility vs satisfaction vs usefulness difference

Though satisfaction and usefulness sound similar to, but have considerable difference from utility. Exactly, the result of final consumption of commodity is termed as satisfaction. How do you feel after consuming the given commodity is known as satisfaction. On the other hand, utility is about the ability of the commodity in satisfying wants of the person.

Hence, utility and satisfaction have different meaning even though seems similar. As I mentioned earlier that utility is all about the power or ability of given commodity in satisfying want of consumer. It has nothing to do with need, necessity but satisfaction.

utility vs usefulness difference

A commodity may have utility but not necessary to have usefulness. For example, you like to have junk food. It may offer great satisfying power, but it cause health problems as well. Since, we can’t say it is useful but it has utility for you. Therefore, utility, satisfaction, and usefulness are similar but different concepts and should not be used interchangeably.

At last, we can say that utility is a capacity, ability, power of commodity to satisfy the wants the person have regarding to. Now, let’s learn about measureable or quantifiable nature of utility utility.

Measureable or quantifiable nature of utility

For clarity, utility is measurable. It means that you derive satisfaction from a commodity is possible to measure by assigning numerical value

Suppose, if a pack of ice cream may offer utility value 20 for a consumer, and 30 for another consumer, it means that the later derive 50 percent more utility value than that of previous one. In terms of measure, utility has two types — cardinal and ordinal utility.

Cardinal utility means assigning numerical value to the commodity. And, ordinal utility means, giving order or rank to the commodity compare to others. Suppose, you like to eat pizza. And, you have pizza and burger, and sweet on your table. What would you do in such condition? Definitely, you will rank available food items according to the utility of the items have.

In this way utility value can be measured by assigning numerical value and ranks or order. Now, let’s go deeper to learn marginal utility and total utility.

Difference between marginal utility and total utility

Most of the time we consume more than one item to gain more satisfaction. In this case, the degree of satisfaction or satisfying power of wants increases with additional units. The increase in value of satisfaction with consuming additional unit is known as marginal utility.

In short, increase in utility value by consuming additional unit, is called marginal utility. It shows how the value of utility of unit increases or decreases with exra unit. Marginal utility (MU) may be positive, zero, or negative, depending on the consumed units.

Secondly, total utility is all about the sum of marginal utility derived from all the consumed units or commodities. Even though marginal utility declines from the beginning, total utility rises with consumption of an extra units. In the total utility graph, it is shown as rising, point of satiety, and declining phase.

On the utility curve, total utility starts diminishing when the marginal utility becomes zero. Total utility is a positive concept and can’t be zero.

Relationship between total utility and marginal utility

Here, I’m going to differentiate between total utility and marginal utility.

Initially, at the first unit of consumption, the total utility and marginal utility are equal.
From the second unit of consumption, the total utility increases with the diminishing rate and the marginal utility diminishes.
When the marginal utility becomes zero, the total utility is maximum(point of satiety).
When the marginal utility becomes negative, the total utility also starts diminishing (state of dissatisfaction).
A rational consumer stops the consumption of a point of satiety.
Beyond the point of satiety, continuity in consumption gives dissatisfaction to the consumer.

Law of diminishing marginal utility

Thought the law of diminishing marginal utility was explained by Mr. Gossen earlier, later it was explained in detail by Mr. Alfred Marshall in the ” The principles of economics” in 1890.

Statement of the law of diminishing marginal utility

“Other things being equal, the additional benefit which a person derives from the increase in the stock of a thing diminishes with every increase in the stock that he already has.”

Assumptions of law of diminishing marginal utility. Following are assumed things in the law of diminishing marginal utility.

Consumer is rational person and he tries to maximize his satisfaction.
Utility can be measured in numbers.
Units of commodity consumed by consumer are identical in shape, size, taste, color etc.
Commodities consumed in quick succession. And,
The size of unit is reasonable.
6.All other factors like income, taste, choice, are constant during consumption period.
Commodities consumed by consumer are divisible.
Utility of money income remains constant.

While assuming assumptions of the law of diminishing marginal utility, there are certain things kept out as exceptions, and they are hobbies, misers, addictions, power, money, etc. In the today’s globalizing market, the role of the law of diminishing marginal utility is much more than earlier.

By using this as yardstick it will be useful for producers to determine the production of similar commodities and focus on new items by the means of diversification.