In economics, utility refers to the amount of satisfaction that a consumer gains from a particular good or service.
- Total utility refers to the complete amount of satisfaction gained.
- Marginal utility refers to the satisfaction gained from an extra unit consumed.
- If the marginal utility of the last item is positive – then total utility will be increasing
- If the marginal utility of the last consumption is negative – total utility will be falling
Example of Marginal and Total Utility for Icecream consumption
- Total utility is maximised at the point where Marginal utility is zero. (quantity 5 or 6)
- Total utility starts to fall when marginal utility is negative
This shows the law of diminishing marginal utility of consumption. If you eat too many ice-creams, you start to get negative utilty and the total satisfaction starts to decline
The decision of how much to consume also depends on the marginal cost of production.