Relationship Between Total Utility and Marginal Utility

Total utility refers to the total satisfaction one gets from one’s consumption of a product while marginal utility refers to the satisfaction one gets from the consumption of an incremental or additional unit of a product above and beyond what one has consumed up to that point.

Here, it is necessary to define the principle of diminishing marginal utility, which states that the marginal utility of an item tends to decline as more of the item is consumed over any given period.

The relationship between total utility and marginal utility exist as at first unit of consumption of a commodity total utility is equal to marginal utility, which is also called initial utility. When marginal utility of each successive unit of consumption of a commodity declines and remains positive in values, total utility tends to increase at decreasing rate. The unit of a commodity consumed where marginal utility is zero, total utility is maximum and this level is called point of satiety for the consumer. The unit of a commodity consumed after reaching at point of satiety gives negative marginal utility or disutility to the consumer, therefore, total utility tends to decrease. So, it is no use having this unit.

There are four relations between Marginal Utility and Total Utility:

1. When Marginal Utility is positive, Total Utility is increasing.
2. When Marginal Utility is zero, Total Utility is maximum.
3. When Marginal Utility is negative, Total Utility is diminishing.
4. Total Utility is the addition of the MUs and Marginal Utility is the change in Total Utility.

The relationship between marginal utility and total utility can also be explained with the help of schedule and diagram.

Explanation of the Table:

From the above schedule it is clear that:

1. When Marginal Utility is positive i.e., until 5th unit, total utility is increasing i.e., from 10 to 30.
2. When Marginal Utility is zero, total utility is maximum in the above schedule at 6th unit marginal utility is zero and total utility is maximum i.e., 30. (The utility of 6th unit is maximum because decreasing trend starts after 6th unit in. T.U.).
3. When Marginal Utility is negative, total utility is diminishing. In the schedule, Marginal Utility is -2 at 7th unit and total utility has diminished from 30 to 28.
4. Total Utility is the sum of marginal utilities. The sum of marginal utilities of all the seven units consumed is 28. Marginal utility is the rate of change in total utility.

Explanation of the Diagram:

1. Units of commodity consumed have been measured on X-axis and utility on Y-axis. Total utility curve has been drawn by joining the points a, b, c, d, e, f and g and Marginal Utility curve has been drawn by joining points a, h, i, j, k, I and m.
2. Up to 5th unit Marginal Utility is positive and total utility is increasing i.e., from point a to e. Thus, so long as M.U. curve dose not touch horizontal axis T.U. curve increases upward.
3. At 6th unit marginal utility is zero as shown by point “f” and total utility is maximum i.e., 60. Thus when M.U. becomes zero T.U. reaches its highest point.
4. At 7th unit marginal utility is negative and total utility is diminishing. It has diminished from point f to g. Thus, when M.U. becomes negative T.U. falls.

References:

Munir Ahmed Bhutta. Economics, Azeem Academy Publishers, Lahore.

Abdul Haleem Khawja. Economics, Khawja and Khawja Publishing House, Islamabad.

Manzoor Tahir Ch. Principles of Economics, Azeem Academy Publishers, Lahore.

Muhammad Irshad. Economics, Naveed Publications, Lahore.

K K Dewett & M H Navalur. Modern Economic Theory (Theory and Policy), S. Chand Publishing