total utility and marginal utility
total utility and marginal utility
UTILITY
It is defined as the amount of satisfaction derived by a consumer from consuming a commodity at a given time and place. The satisfaction derived from consuming a commodity differs from person to person, place to place and between time intervals.
It is often difficult to measure units of satisfaction derived from a consumption from a commodity. But however, economist have assumed that utilities can be measured in terms of utilities.
Utility is quite different from usefulness. Therefore, a good may be satisfied even though it is not useful e.g. a cigarette smoker may gain satisfaction from smoking cigarette but in terms of usefulness, the cigarette has no function or use in the human system.
Characteristics of utility
- Utility vary from person to person and from time to time and place to place
- It is measured in utilities
Types of utilities
Total utility (T.U)
It is the total satisfaction derived by a consumer from the consumption of a commodity at a time and place. As more of the commodity is consumed, total utility is increasing at a decreasing rate.
Marginal utility (MU)
It is the additional satisfaction which a consumer obtains from consuming an additional unit of a commodity. It is calculated as
MU = change in total utility (ΔTU)
Change in output consumed (ΔQ)
The law of Diminishing marginal utility
The law states that “the satisfaction derived by a consumer from consuming a particular commodity decreases as more of that commodity is consumed”.
