Utility is the satisfaction that a person derives from the

consumption of a good or service. Total utility is the total

satisfaction received from consuming a given total quantity of a
good or service, while marginal utility is the satisfaction gained
from consuming another quantity of a good or service. Sometimes,
economists like to subdivide utility into individual units that they
call utils. However, because utility is subjective, meaning that it
differs from person to person, and because it varies continuously,
depending on the quantity consumed, an util cannot actually be
measured, but is simply a heuristic device that allows economists
to talk about the degree of satisfaction of a product or service.
Although one definition of utility is usefulness, usefulness is not a
quality in economic utility. For instance, water is very useful, but
doesn't have much utility for most people. On the other hand,
judging by recent gold prices in the market, gold has great utility
for some people, but it is not very useful.
One quality of marginal utility is that it always declines for each
successive quantity consumed of a particular good. If you like ice
cream, and you eat one scoop, the first scoop will provide the
greatest satisfaction. If you eat another scoop, you'll probably
enjoy that also, but the satisfaction will be less than for the first.
At some point, you will not want any more ice cream. The marginal
utility will drop to zero and will even become negative. This is an
everyday illustration of the law of diminishing marginal
utility. Marginal utility declines for everything, including money.
Although many people want to amass great wealth, each dollar
that is accumulated becomes worth less and less, because the
marginal utility of what it can buy declines.

Declining marginal utility explains why the demand curve slopes

downward as the supply quantity is increased, and why people will
only consume more if the price declines, since people's willingness
to pay also declines.
Marginal utility can also be related to the elasticity of demand. If
demand is inelastic, then the quantity demanded drops off sharply
as the price increases; with elastic demand, quantity drops off
more slowly. So a product for which there is inelastic demand will
have a marginal utility that drops off sharply, while a product with
elastic demand will have a marginal utility that declines more
slowly.

onsumer Choice
Consumer choice is guided by preferences for specific products,
budget constraints, prices, and the marginal utility of products. A
budget constraint exists because the consumer only has so much
money, so he can only spend so much; therefore, even among
things that he desires, he must still make a choice. This choice will
depend on the marginal utility of the product and its price.
Because marginal utility declines with quantity, while the price

does not vary, a consumer will tend to buy as much product until
the marginal utility of the product falls below the marginal utility of
other products that the consumer can buy. Hence, the consumer
stops buying more of a product when the marginal utility of an
additional amount is less than its price. In this way, the total utility
of what the consumer can purchase within his budget is
maximized. So the marginal utility of each type of product divided
by its price will be roughly equal to the marginal utility of the other
products that the consumer purchased divided by their prices.
Marginal Utility of Product A

Marginal Utility of Product B

=

Price of Product A

Price of Product B

ndifference Curve Analysis

How consumer choice varies with marginal utility is sometimes
depicted with indifference curves. Each point on an indifference
curve represents a combination of products that yields the same
total utility for the consumer. Because each consumer's purchasing
power is limited, this budget constraint, represented by a budget
line, limits the choices that the consumer can actually make.
Indifference curve analysis is simplified by assuming that the
consumer spends all of her money on 2 products. For instance,
suppose the consumer has $12 to spend on cantaloupes and
apples. Each cantaloupe costs $2 apiece and each apple costs $1
apiece. The following table shows what can be purchased:
Apples

Cantaloupes

10

12

This yields the following budget line:

An indifference curve for this example would yield every

combination of apples and cantaloupes that yield the same total
utility. Indifference curves are convex to the origin because of the
law of diminishing marginal utility when there is a predominance
of cantaloupes, then the marginal utility of an additional
cantaloupe is less than the marginal utility of an additional apple,
and vice versa. In other words, consumers like variety. A tangent
line to an indifference curve represents the marginal rate of
substitution (MRS) of one product for the other that maintains
total utility.

An indifference map can be created by several indifference

curves representing an increased budget for apples and
cantaloupes that allows the consumer to buy more of each product
for a greater total utility. Generally, consumers with higher incomes
will have larger budgets for specific items. In the above diagram,
for instance, I1 represents the indifference curve at the lowest total
utility of the 3 displayed in the diagram. The consumer would not
choose any point on this curve because her higher income with her
correspondingly increased budget for cantaloupes and apples
would allow her to achieve greater total utility by choosing a point
on indifference curve I2 that would still be affordable. When the
consumer's budget line is superimposed on the indifference map,
the point where the budget line is tangent to the highest
indifference curve is the highest attainable total utility, given the
consumer's budget, and represents the consumer's equilibrium
position. Although curve I3 offers higher utility, the price of any
combination of cantaloupes and apples on this indifference curve is
outside of her budget.

Concept Of Marginal Utility

Marginal utility is the change in total utility by the consumption of an additional
unit of a commodity. In other words, marginal utility is the addition to

thetotal utility derived from the consumption of one additional unit. It is also
called additional utility. Marginal utility can be explained with the help of an
example. When a consumer consumes one orange, he gets total utility equal to
8 utils. By consuming second orange, total utility becomes 14 utils i.e 8+6.
Therefore the marginal utility of the second orangeis 6 utils i.e. 14-8.
Concept Of Total Utility
The total satisfaction received from the consumption of given quantities of
a commodity by aconsumer within a given time period is called total utility. In
other words, total utility is the sum of all marginal utilities obtained from the
consumption

of

different units of

a commodity.

For

example,

suppose

a consumer consumes first unit of an orange and gets 8 utils utility. As he

consumes second unit of orange his total utility increases to 14 utils i.e 8+6 if he
gets 6 utils utility from secondorange.In the same way total utility increases to 18
utils (8+6+4) as he consumes third orange and gets 4 utils from it.
Relationship Between Total Utility And Marginal Utility
1. Total utility is the sum total of marginal utility whereas marginal utility is the
change in total utility.
2. Total utility generally remains positive while marginal utility may be positive,
zero or even negative.
3. When marginal utility is positive, total utility rises.
4. When marginal utility is zero, total utility is the maximum.
5. When marginal utility is negative, total utility falls.