Note that the first good or service you consume will give you the highest marginal utility. The law states that the more you consume a particular product or service, the more the additional satisfaction drops. In order to understand better what total utility is, you first have to learn what the law of diminishing marginal utility is. In such a scenario, the consumer will choose the option that has the most utility for money. The two options presented to the consumer are of the same cost, and at the same time, none of the options is more functional or necessary than the other. Lets assume that a consumer has two options for purchasing either goods or services. Note that to maximize utility, the marginal utility of the money you spent on a product or service, should be equal to or exceed the marginal utility of purchase that you could have made. For instance, if purchasing a larger quantity of one item results in smaller marginal utility than when you spent the money to acquire another item, it means that the marginal utility will be less compared to purchasing the other item. So, what total utility does is to ensure that it maximizes resources by allocating them to services or products, where marginal utility equals each other. The reason is that people have scarce resources, but at the same time, have a desire to achieve the possible maximum satisfaction from the consumption of products and services. Total Utility MaximizationĪnalysts who use classical economic theory to analyze consumer activities believe that the goal of every consumer is to attain the largest utility at the possible lowest cost. Besides demand theory and consumer theory, the action of a consumer is directed toward utility maximization, where a consumer tries to achieve the best possible satisfaction at the most reasonable cost. Total utility is basically the maximum happiness that a consumer experience after having an experience with a particular product or service through its life span. Back to: ECONOMIC ANALYSIS & MONETARY POLICY How is Total Utility Used? So, the total utility is simply an individuals sum of units of all the marginal utilities. Note that every consumer unit of product or service has a marginal utility of its own. Economic analysts use it to analyze consumer preferences in the marketplace. Total utility is usually defined as a quantifiable summation of satisfaction or happiness obtained from consuming multiple units of a particular good or service.Total utility refers to the amount of satisfaction that a consumer derives from a specific product or service. In economics, utility refers to the satisfaction gained from consuming a good or service. In general, economic theories believe that consumer actions are usually based on the goal of total utility maximization, which leads to purchasing units perceived to have the greatest utility satisfaction.
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