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'

Total utility is 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 consumer theory and 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 life span. 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 the cookies in the bag, with each cookie consumed providing a level of marginal utility contributing to the total.

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

    Utility is an economic term referring to the total satisfaction ...
  2. Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains ...
  3. Expected Utility

    Expected utility is an economic term summarizing the utility ...
  4. Capacity Utilization Rate

    The capacity utilization rate is a metric used to measure the ...
  5. Demand Theory

    Demand theory is a principle relating to the relationship between ...
  6. Dow Jones Utility Average - DJUA

    The Dow Jones Utility Average (DJUA) is a price-weighted average ...
Related Articles
  1. 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.
  2. 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.
  3. Investing

    How Utilities ETFs Deal With Rising Rates

    Utilities stocks and ETFs may be vulnerable to rising interest rates, but there are other factors to consider.
  4. Trading

    Invest in Utilities With These ETFs (XLU, JXI)

    The strong uptrends shown on the charts of these utility ETFs suggest now could be the time to buy.
  5. Investing

    The 4 Largest Utilities ETFs (XLU, VPU)

    Learn about the utilities sector, and discover the top four exchange-traded funds that can be used to gain investment exposure including XLU and VPU.
  6. Trading

    3 Charts Suggest Traders Are Flocking to Safety of Utilities

    The rise in utility stocks over the past several weeks suggests that traders are turning to the safety of reliable sectors such as utilities for growth.
  7. Investing

    VPU Vs. XLU: Comparing Utilities ETFs

    Discover why utilities is the only U.S. stock sector that has managed to gain in early 2016, and review a comparative analysis of the Vanguard and SPDR Utilities ETFs.
  8. Investing

    Why Utilities are the Hottest Sector (XLU)

    The performance of utilities has made it the hottest sector this year.
  9. Trading

    Hesitant Traders Turn Their Attention to Utilities

    Nearby support on the charts of key utilities suggests that the sector could be a good choice in the coming months.
  10. Investing

    Utility Favorites From Aqua to Xcel

    Several leading experts see utilities as a recession-resistant opportunity for long-term growth and income investors.
RELATED FAQS
  1. What is the utility function and how is it calculated?

    Economists measure utility in revealed preferences by observing consumer choices and ordering consumption baskets from least ... Read Answer >>
  2. What is the concept of utility in microeconomics?

    Read about the concept of utility in microeconomics, and learn why economists disagree about its usefulness in the analysis ... Read Answer >>
  3. What is a utility stock?

    Investing in difficult economic conditions requires knowledge of different stock classes. Utility stocks are one vehicle ... Read Answer >>
  4. What are the Four Types of Economic Utility?

    Understand the four main types of economic utility that apply to transactions between consumers and businesses: form, time, ... Read Answer >>
  5. What is the difference between marginal utility and marginal value?

    Find out what marginal utility and marginal value mean in economics and why these terms sometimes overlap to describe the ... Read Answer >>
  6. Why do utility stocks pay high dividends?

    Learn why utility stocks pay high dividends and how government-produced monopoly protects privileged utility companies from ... Read Answer >>
Trading Center