Total Utility

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.