Step-by-Step Guide: Relationship, Formulas & Numericals for TU and MU
In Economics, understanding utility is essential as it helps explain how consumers make choices about different goods and services. Utility refers to the satisfaction or pleasure a consumer derives from consuming a good or service. Two fundamental concepts in this context are Total Utility and Marginal Utility. Grasping the distinction and relationship between them is crucial for mastering topics like consumer behavior, demand, and the Law of Diminishing Marginal Utility.
What is Total Utility and Marginal Utility?
Total Utility (TU) represents the overall amount of satisfaction a consumer receives from consuming all units of a particular commodity. For example, if someone eats three apples and gains 20 utils from the first apple, 15 utils from the second, and 10 utils from the third, their total utility from consuming all three apples would be 45 utils.
Marginal Utility (MU), on the other hand, is the additional satisfaction gained from consuming one more unit of the commodity. Using the same apples example, if the consumer eats the second apple, the marginal utility of the second apple is the difference between the total utility after consuming two apples and after consuming one apple: 35 utils (after two) minus 20 utils (after one), which equals 15 utils.
Law of Diminishing Marginal Utility
The Law of Diminishing Marginal Utility states that as a person consumes more units of a good or service, the additional satisfaction (marginal utility) obtained from each extra unit decreases. The first unit usually gives the most satisfaction, and with successive units, the added satisfaction falls. For instance, the first slice of pizza often tastes better than the second or third.
This principle is vital in Economics because it helps explain why a consumer may not purchase unlimited quantities of a product and why the demand curve slopes downward.
Schedule Illustrating Diminishing Marginal Utility
| Units Consumed | Total Utility (TU) | Marginal Utility (MU) |
|---|---|---|
| 1 | 20 | 20 |
| 2 | 35 | 15 |
| 3 | 45 | 10 |
| 4 | 50 | 5 |
| 5 | 50 | 0 |
| 6 | 45 | -5 |
From the table above, notice how marginal utility decreases with every additional unit consumed. Total utility rises initially, reaches a maximum (where marginal utility is zero), and then may decline as marginal utility becomes negative.
Stepwise Calculation
To find marginal utility, use the formula:
To get total utility, sum up the marginal utilities:
For example, if a consumer receives the following marginal utility from four units of a good—20, 15, 10, and 5—the total utility after four units is 20 + 15 + 10 + 5 = 50 utils.
Examples for Better Understanding
Suppose a hungry person buys five chapatis. Eating the first chapati provides high utility due to hunger. The second chapati still adds satisfaction but less than the first. As he continues eating, each successive chapati adds less utility, and after some point (like the fifth chapati), consuming another could even bring discomfort (negative utility).
This example clearly shows that marginal utility usually falls with increased consumption, and total utility rises and then can plateau or decrease.
Assumptions and Limitations
The Law of Diminishing Marginal Utility assumes that all units of the commodity consumed are identical and consumed in succession. It may not hold if consumption conditions change, the units differ, or if external factors influence satisfaction.
There are also instances where this law may not apply, such as in the case of rare collectibles, hobbies, or addictive substances, where satisfaction may not diminish in the usual manner.
Key Differences: Marginal Utility vs. Total Utility
| Parameters | Marginal Utility (MU) | Total Utility (TU) |
|---|---|---|
| Meaning | Satisfaction from consuming one additional unit | Total satisfaction from all units consumed |
| Rate of increase | Decreases as total utility increases | Increases until maximum, then constant or falls |
| Results | Falls with every extra unit | Affected by diminishing returns |
Applications in Commerce and Real Life
This concept is widely used to explain consumer choices, demand curves, and pricing strategies in business. For example, companies use the Law of Diminishing Marginal Utility to design quantity discounts and combos, knowing that additional units bring lower individual satisfaction.
Understanding diminishing returns is also important in hiring decisions or business investments. Adding employees or machines beyond a point may yield less benefit per additional unit.
Next Steps and Practice for Mastery
To gain a solid understanding of total utility and marginal utility, practice constructing utility tables and analyzing stepwise increases. Try to relate the concepts to everyday experiences, such as eating, shopping, or using technology. For more detailed learning and practice questions on similar commerce and economics topics, explore other resources on Vedantu.
- For concepts related to energy and its different forms, visit Energy in Physics.
- Learn more about work, energy, and power at Work, Energy, and Power.
Mastering the basics of utility can strengthen your core understanding of Economics and Commerce, helping you solve numerical problems and apply theories to practical cases.
FAQs on Difference Between Total Utility and Marginal Utility Explained
1. What is the main difference between total utility and marginal utility?
Total utility (TU) is the total satisfaction derived from consuming all units of a commodity, while marginal utility (MU) is the additional satisfaction gained from consuming one extra unit.
• Total Utility: Sum of all utilities from each unit consumed.
• Marginal Utility: Change in utility when an extra unit is consumed.
These concepts are crucial for understanding consumer equilibrium and the law of diminishing marginal utility.
2. What is the relationship between total utility and marginal utility?
Marginal utility (MU) determines the change in total utility (TU) as more units are consumed:
• When MU is positive, TU rises.
• When MU is zero, TU is maximum.
• When MU is negative, TU falls.
Formula: TUn = TUn-1 + MUn or MUn = TUn − TUn-1.
3. How do you calculate total utility from marginal utility?
Total utility (TU) is calculated by adding up all marginal utilities:
Formula: TU = ΣMU
• Add the marginal utility of each unit consumed.
• For example, if MU values are 10, 8, and 6, then TU after 3 units = 10 + 8 + 6 = 24 utils.
4. When does marginal utility become zero?
Marginal utility (MU) becomes zero when consumption reaches a point of maximum satisfaction (saturation point). Beyond this, consuming more units provides no additional satisfaction and may lead to negative utility if consumption continues.
5. Can total utility ever decrease? If so, when?
Yes, total utility (TU) can decrease when the marginal utility (MU) becomes negative. This happens if additional consumption leads to dissatisfaction, causing overall total utility to drop, which is shown after the point of maximum satisfaction on utility diagrams.
6. What is the Law of Diminishing Marginal Utility?
The Law of Diminishing Marginal Utility states that as a consumer consumes more units of a commodity, the additional satisfaction (marginal utility) from each extra unit decreases. This continues until marginal utility reaches zero or turns negative.
7. Give an example to explain the difference between total utility and marginal utility.
Example:
• Eating 1 chocolate gives 10 utils (TU = 10, MU = 10).
• Eating a 2nd gives 8 more utils (TU = 18, MU = 8).
• The 3rd gives 6 more utils (TU = 24, MU = 6).
Total utility sums satisfaction, while marginal utility is the satisfaction from just the latest unit.
8. How are total utility and marginal utility represented in diagrams?
In diagrams:
• Total utility (TU) curve rises, reaches a peak, then may fall or flatten.
• Marginal utility (MU) curve slopes downwards, crosses zero, and can dip negative.
This graphical representation shows the law of diminishing marginal utility and their relationship clearly.
9. What is the formula for marginal utility?
Marginal Utility (MU) is calculated using:
MUn = TUn – TUn-1
This shows the change in total utility when one more unit is consumed.
10. What is an example of negative marginal utility?
When marginal utility (MU) becomes negative, consumption of an extra unit decreases overall satisfaction.
Example: If eating a 7th chocolate causes discomfort, the marginal utility will be negative and total utility will start to fall after this point.
11. Why is understanding total and marginal utility important in economics?
Understanding total utility and marginal utility helps explain consumer behavior, optimal consumption choices, and the law of demand in microeconomics. Mastery of these concepts is essential for solving numerical problems and interpreting utility diagrams in exams.
12. How do total utility and marginal utility relate to consumer equilibrium?
Consumer equilibrium occurs when a consumer maximizes satisfaction by allocating income so that the marginal utility per rupee spent is equal across all goods. At equilibrium, the marginal utility of the last unit consumed equals the price of the good, and total utility is maximized within the budget constraint.
