Block Type
Learn Block
Total and Marginal Utility
Did you know that the concept of "utility" in economics can explain why the first slice of pizza tastes so much better than the seventh slice? This idea is key to understanding how we make decisions about what and how much to buy!
Key concepts
- Total Utility: The complete amount of satisfaction gained from consuming a certain quantity of goods.
- Marginal Utility: The satisfaction gained from consuming one additional unit of a good.
- Total Utility: This is the overall satisfaction you get from eating pizza. The first slice is amazing (high total utility!), and the second is pretty good too (adds to your total satisfaction), but maybe by the fifth slice, you're starting to feel full (lower total utility).
- Marginal Utility: This is the extra satisfaction you get from eating just one more slice. So, the first slice gives you a big boost in happiness (high marginal utility), but each additional slice adds a little less enjoyment (lower marginal utility).
Imagine you love pizza! Here's how total and marginal utility comes into play:
We can illustrate this formally with this table:
Quantity (Slices of Pizza) | Total Utility | Marginal Utility |
1 | 10 | 10 |
2 | 18 | 8 |
3 | 24 | 6 |
4 | 28 | 4 |
5 | 30 | 2 |
6 | 30 | 0 |
7 | 28 | -2 |
Insights from the Pizza Example
- The first slice provides a big jump in satisfaction, reflected by high total utility (10) and marginal utility (10).
- As you eat more slices, total enjoyment keeps increasing (higher total utility), but by smaller amounts with each slice (decreasing marginal utility).
- At the 6th slice, you feel really full—you're no longer getting any additional enjoyment (marginal utility = 0) and your total utility is maximised at 30.
- By the 7th slice, you might even feel uncomfortable (negative marginal utility), meaning another slice decreases your overall satisfaction (total utility goes down)
Let’s graph this table below:
the Law of Diminishing Marginal Utility states that as more of a good is consumed, the marginal utility gained from the consumption of an additional unit decreases
If you notice, the red line from the graph demonstrates the diminishing marginal utility of consumption – As you consume more of a good, the extra satisfaction (marginal utility) you get from each additional unit decreases (hence the curve starts dropping after the 6th slice)
Deeper Explanation:
Think of total utility as the sum of all your satisfaction. When you eat the first slice of pizza, your total utility is high because it's very satisfying. As you eat more slices, the additional satisfaction (marginal utility) you get from each extra slice decreases.
- Second Slice: If the marginal utility of the second slice is 8, it adds to the total utility from the first slice. So, 10 (from the first slice) + 8 (from the second slice) = 18 total utility.
- Always Decreasing: Marginal utility always decreases as you consume more. Each additional slice of pizza provides less satisfaction than the previous one.
Example: Your total utility increases with each slice, but by smaller amounts:
- From the first to the second slice, total utility jumps from 10 to 18.
- From the third to the fourth slice, it increases from 24 to 28.
- By the 5th or 6th slice, your total utility is maximised at 30. After this point, eating more pizza doesn't add to your satisfaction (marginal utility = 0).
- By the 7th slice, your total utility decreases because the marginal utility becomes negative, meaning each additional slice actually reduces your overall satisfaction.
‣