This article describes the difference between total,
marginal, and average utility and gives an example of how to find each of them
given an initial table.
|
Utility Table
|
|
|
|
|
Quantity
Consumed
|
Total Utility (sum of utility from
consumption)
|
Marginal Utility (change in total
utility divided by change in quantity consumed)
|
Average Utility (total utility divided
by total quantity consumed)
|
|
1
|
50
|
50
|
50
|
|
2
|
90
|
40
|
45
|
|
3
|
120
|
30
|
40
|
|
4
|
140
|
20
|
35
|
|
5
|
150
|
10
|
30
|
|
6
|
155
|
5
|
25.83
|
|
10
|
160
|
1.25
|
16
|
The difference between total utility, marginal utility and
average utility is pretty intuitive but it takes some practice to learn.
Most problems in economics will give you a table showing the
quantity consumed/purchased, and an associated column showing total utility
from these purchases. Total utility
shows the total amount of utility (satisfaction or happiness) achieved from the
consumption of ALL of the goods or services consumed.
Using the above table as an example, the total amount of
happiness you get from consuming 1 good is 50, but if you consume 2 goods you
will have a total utility of 90. If you
happen to consume 10 goods, your total utility from the consumption of these 10
goods will be 160.
Marginal utility is calculated by taking the difference in
total utilities, and dividing by the change in quantity consumed. Most of the time the change in quantity
consumed will be 1, but this is not always the case. Using the table above as an example,
calculating the marginal utility is done by taking the difference between total
utility (and dividing by 1, which gives the same number). However, when we move from consuming 6 units
to 10 units, we have to divide the change in total utility (5) by the change in
quantity (4) to get 1.25, which means that each good provides 1.25 utility.
To get average utility, we take total utility and divide it
by the number of goods being consumed.
Using the table above as an example, you can see that each row in the
average utility column can be confirmed by taking the amount in the total
utility column and dividing by the amount in the quantity column.
Also keep in mind the idea of diminishing marginal
utility. The table above adheres to
these rules, and for more information on diminishing marginal utility look
here.
