What is 'Total Utility'

Total utility is the aggregate level of satisfaction or fulfillment that a consumer receives through the consumption of a specific good or service. Each individual unit of a good or service has its own marginal utility, and the total utility is simply the sum of all the marginal utilities of the individual units. Classical economic theory suggests that all consumers want to get the highest possible level of total utility for the money they spend.

BREAKING DOWN 'Total Utility'

Utility refers to the amount of satisfaction or happiness that is derived from a particular good or service, and is used in analysis of consumer preference within a marketplace. As part of the theory of the consumer or the consumer demand theory, consumer action is driven toward utility maximization by attempting to acquire the most satisfaction possible in the most affordable way.

Total utility includes the satisfaction derived from a particular good or service through the duration of its lifespan. For example, a cookie provides a level of total utility as determined by its singular consumption, while a bag of cookies may provide its total utility over the course of time it takes to completely consume all of the cookies in the bag, with each cookie consumed providing a level of marginal utility contributing to the total.

Utility Maximization

Economic theory regarding consumer activities suggests that the primary goal of the consumer is to achieve the largest amount of utility for the least amount of cost. This is partly due to the limited amount of funds a person may possess, as well as a desire to achieve as much satisfaction from the consumption of goods and services as possible.

For example, if a consumer is presented with two purchasing options with the same financial cost, and neither option is more necessary or functional than the other, the consumer will choose the good or service that provides the most utility for the money.

The Law of Diminishing Marginal Utility

To better understand total utility, one must understand the law of diminishing marginal utility, which states that as more of a single good or service is consumed, the additional satisfaction, referred to as marginal satisfaction, drops. The first good consumed provides the highest marginal utility, the second good has a lower marginal utility, and so on. Therefore, total utility grows less rapidly with each additional unit of the same good or service.

In order to maximize total utility, consumers seek to achieve different combinations of goods and services. Given their limited resources, consumers will make choices in an attempt to increase their total utility with each additional unit of consumption.

RELATED TERMS
  1. Utility

    1. An economic term referring to the total satisfaction received ...
  2. Marginal Utility

    The additional satisfaction a consumer gains from consuming one ...
  3. Marginal Benefit

    The additional satisfaction or utility that a person receives ...
  4. Law Of Diminishing Marginal Utility

    The Law Of Diminishing Marginal Utility is a law of economics ...
  5. Utilities Sector

    A category of stocks for utilities such as gas and power. The ...
  6. Utility Revenue Bond

    A type of municipal bond that is issued to finance utility projects, ...
Related Articles
  1. Insights

    Explaining Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.
  2. Insights

    Trust In Utilities

    Even in times of economic turmoil, utilities can be a good investment.
  3. Investing

    Are Safe Haven Utility Stocks, ETFs Too Expensive?

    With so many investors seeking safety are utility stocks and ETFs a crowded trade?
  4. Investing

    The Debt Report: The Utilities Sector

    Discover how blue chip U.S. utilities companies are using debt, and why it was important for the industry to deleverage after the financial crisis.
  5. Financial Advisor

    Why Utility Stocks Are No Longer a Safe Haven

    Utility stocks have been the best performing sector in the S&P 500 Index so far this year but many believe they are now overvalued.
  6. Investing

    5 Popular Utilities ETFs in 2016 (XLU, NEE)

    Discover how the five most popular utilities ETFs for 2016 can add growth and income to your portfolio. Four of these utilities ETFs outperformed the S&P 500.
  7. Investing

    Utilities ETFs to Date 2016 Performance Review (UPW, FXU)

    Discover the best and worst performing exchange-traded funds (ETFs) within the domestic and international utilities sector year-to-date.
  8. Investing

    ETF Flows: Utilities ETFs Stand Tall in 2016

    Find out which utilities exchange-traded funds (ETFs) have benefited the most from the huge surge in fund inflows in the early part of 2016.
  9. Investing

    The Top 5 Utility ETFs for 2016 (XLU, IDU)

    Discover the top utility company ETFs, and learn more about how you can get exposure to water, electricity and natural gas utility companies.
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    Learn how marginal utility influences consumer choice under the law of diminishing marginal utility and consumer decisions ... Read Answer >>
  2. What is the difference between marginal utility and marginal benefit?

    Learn more about the different interpretations, uses, and implications of marginal benefit and marginal utility in economic ... Read Answer >>
  3. How do businesses calculate their marginal utility?

    See why, even though businesses do not have marginal utility of their own, a firm can apply the concept of diminishing marginal ... Read Answer >>
  4. What is the utility function and how is it calculated?

    Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ... Read Answer >>
  5. What kind of investors buy utility stocks?

    Take a look at why income investors like utilities, why value investors might like utilities and why growth investors tend ... Read Answer >>
  6. What are the different ways that utility is measured in economics?

    Learn about the two methods used to measure the concept of utility and how utility influences other economic models of consumer ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center