Relationship between marginal utility and total utility?
Relationships between marginal utility and total utility
Total Utility
Total Utility means total benefit obtained by a person from consumption of goods and services.
Result : Suffers from diminishing returns.
Marginal Utility
Marginal Utility means the amount of utility a person gains from the consumption of each successive unit of a commodity.
Result : Declines for each additional unit consumed.
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Relationship between marginal utility and total utility?
Relationships between marginal utility and total utility are as follows: 1. when marginal utility is positive total utility increases. 2. when the marginal utility is negative total utility decreases. 3.when the total utility remains constant marginal utility shows zero satisfaction means reaches the saturation point.
Relationship between marginal utility and total utility?
Marginal Utility and Total Utility:
Definition:
- Marginal utility refers to the additional satisfaction or utility that a consumer derives from consuming an additional unit of a good or service.
- Total utility, on the other hand, refers to the overall satisfaction or utility that a consumer obtains from consuming a certain quantity of a good or service.
Relationship between Marginal Utility and Total Utility:
1. Relationship with Consumption:
- Marginal utility is closely related to the level of consumption of a good or service, as it measures the change in satisfaction resulting from the consumption of an additional unit.
- Total utility, on the other hand, is the sum of the marginal utilities of all units consumed up to a certain quantity.
- As a consumer consumes more units of a good, the marginal utility generally decreases, leading to a diminishing marginal utility.
2. Law of Diminishing Marginal Utility:
- The relationship between marginal utility and total utility is governed by the law of diminishing marginal utility.
- According to this law, as a consumer consumes more units of a good, the marginal utility derived from each additional unit diminishes.
- This means that the total utility increases at a decreasing rate as the consumption of a good increases.
3. Relationship with Consumer Behavior:
- Marginal utility plays a crucial role in determining consumer behavior and decision-making.
- Rational consumers aim to maximize their total utility by allocating their limited resources to the goods and services that provide the highest marginal utility per unit of cost.
- When the marginal utility of a good decreases, consumers are less willing to pay a higher price for additional units. This explains why demand curves slope downwards.
4. Equilibrium:
- The consumer achieves equilibrium when the marginal utility per dollar spent is equal for all goods consumed.
- At equilibrium, the consumer has maximized their total utility given their budget constraints.
- This occurs when the marginal utility from the last dollar spent on each good is equal.
Conclusion:
- Marginal utility and total utility are closely related concepts in economics.
- Marginal utility measures the additional satisfaction gained from consuming an extra unit, while total utility represents the overall satisfaction obtained from consuming a certain quantity of a good or service.
- The law of diminishing marginal utility governs the relationship between these two concepts, stating that the marginal utility decreases as consumption increases.
- Understanding the relationship between marginal utility and total utility is crucial for analyzing consumer behavior and decision-making processes.
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