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“Utility” is concept created to address that need. “Total utility” is defined as a consumer’s overall satisfaction. In addition, “marginal utility” is defined as the additional satisfaction of a consumer in buying an additional unit of a good.
“Utility” is concept created to address that need. “Total utility” is defined as a consumer’s overall satisfaction. In addition, “marginal utility” is defined as the additional satisfaction of a consumer in buying an additional unit of a good.
Economics is not only about money. The economic concept of “utility” encompasses everything worthwhile whether it has to do with money or not. Helping someone has “utility”, for example, even though it is voluntary and not for money. Charity has utility even though nothing is obtained in return.
Let’s take an example. Suppose you are on a family road trip by car out West. You left your campsite near Phoenix just after you woke up, and you’re driving through the desert to Los Angeles. You have not eaten all day. Hour by hour goes by and you do not see any place to eat.
Let’s take an example. Suppose you are on a family road trip by car out West. You left your campsite near Phoenix just after you woke up, and you’re driving through the desert to Los Angeles. You have not eaten all day. Hour by hour goes by and you do not see any place to eat.
When you arrive, you run in and order its famous french fries. You’re famished. When the food arrives, you take your first handful of french fries. They seem delicious to you. Your marginal utility is extremely high. You might have paid $10 for that first mouthful of french fries because you are so hungry. Then you eat your second handful of french fries. Your marginal utility is still high, but not quite as high as the first one. You wouldn’t have paid as much for the second bit either, perhaps. By the time you finish all the french fries, the last few bites were not so satisfying. In fact, you’ve gotten sick to your stomach. The marginal utility of that last french fry was very low. Perhaps even less than zero!
When you arrive, you run in and order its famous french fries. You’re famished. When the food arrives, you take your first handful of french fries. They seem delicious to you. Your marginal utility is extremely high. You might have paid $10 for that first mouthful of french fries because you are so hungry. Then you eat your second handful of french fries. Your marginal utility is still high, but not quite as high as the first one. You wouldn’t have paid as much for the second bit either, perhaps. By the time you finish all the french fries, the last few bites were not so satisfying. In fact, you’ve gotten sick to your stomach. The marginal utility of that last french fry was very low. Perhaps even less than zero!
You have just experienced the Law of Diminishing Marginal Utility: the marginal utility of each additional unit (e.g., french fry) always declines (in a given period).
You have just experienced the '''''Law of Diminishing Marginal Utility''''': the marginal utility of each additional unit (e.g., french fry) always declines (in a given period).
In general, the rational consumer will always try to maximize his or her total utility. How is this done? The consumer always purchases the good with the highest marginal utility in order to maximize the total utility.
In general, the rational consumer will always try to maximize his or her total utility. How is this done? The consumer always purchases the good with the highest marginal utility in order to maximize the total utility.