Question

7. What is total utility and marginal utility? How do they affect the real world? Give example.

Answer 1

The total utility is the total satisfaction received from the consumption of goods. The marginal utility is the change in the total satisfaction when one more unit is consumed. It is the utility obtained from the additional unit consumed.

The concepts of total utility and marginal utility are very important in the real world. It helps to make optimal decision to maximize the total utility by stop consuming more when the marginal utility is zero or negative.

For example: A person receives 10 utils of utility from first glass of water when the person was thirsty. The second glass of water will give less utility ( say 6 utils), the third glass of water give utility of 2 utils, the fourth glass reduces the total utility. So, the marginal utility from consumption of second glass of water is 6 utils and 2 utils from the third glass of water. Since the marginal utility is negative on consuming the fourth glass of water, the person will maximize the utility on consuming three glass of water.