Total Utility

AAA

DEFINITION of 'Total Utility'

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.

INVESTOPEDIA EXPLAINS 'Total 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 (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 (which is the inherent goal of all consumers), consumers will look to combine different combinations of goods and services. Given their limited resources (money), consumers will make choices in an attempt to increase their total utility with each additional unit of consumption.

RELATED TERMS
  1. Classical Economics

    Classical economics refers to work done by a group of economists ...
  2. Utility

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

    The additional satisfaction a consumer gains from consuming one ...
  4. Behavioral Economics

    The study of psychology as it relates to the economic decision ...
  5. Law Of Diminishing Marginal Utility

    A law of economics stating that as a person increases consumption ...
  6. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
RELATED FAQS
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  2. What is price variance in cost accounting?

    Price variance in cost accounting is the difference between the actual price paid by a company to purchase an item and its ... Read Full Answer >>
  3. What do you need to know to create a business model?

    A business model lays out the idea for a business, along with the step-by-step plan for making the business profitable. To ... Read Full Answer >>
  4. Do any markets not exhibit asymmetric information?

    Asymmetric information, when interpreted literally, means that two parties to an economic transaction have different information ... Read Full Answer >>
  5. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  6. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  2. Economics

    The Uncertainty Of Economics: Exploring The Dismal Science

    Learning about the study of economics can help you understand why you face contradictions in the market.
  3. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  6. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  7. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  8. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  9. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  10. Economics

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center