When you consider utility, you are looking at a specific aspect of the product or service with the goal of finding the most useful aspects of it. As such, the product or service will be categorized into three major categories: total utility, marginal utility, and value. You will find that the three are interrelated in the utility calculation.
Total utility is the total value of the component parts of the product or service. For example, gas is a type of fuel that has a total utility of $1. If you purchase one gallon of gas it will have a value of $1. However, if you buy three gallons of gas, it’s worth only $1.00.
For example, a car that is a total utility item may be worth $1.00, but a car that is a value item has a total utility of $1.00*3 = $3.00. Marginal utility is the difference between total utility and the total value of the component parts of the product. For example, a piece of luggage that is a total utility item will have a value of $3.
Marginal utility is often misunderstood and misused, and we want to make sure that’s clear here. It is a really important concept to understand because it is a very useful measure of a product’s value. We’ll talk more about it in the next section, but first, here’s what we’re talking about: Total Utility: Is the maximum amount of utility that you are willing to pay for a thing.
That is the most useful way to think about it because at the end of the day, they are each individual things. So a piece of luggage has a marginal utility of 3 and a single person has a total utility of 36.
Like any utility, total utility is a function of what people are willing to pay for it and the amount of utility someone else will pay for it. Total utility, as a rule, goes up as a person’s willingness to pay goes down. In fact, we all have a preference for one of two things, and we are willing to pay for it. The only thing that determines total utility is the cost of each thing.
The second thing that determines what people pay for is the cost of the goods they own. People are willing to pay for goods so they end up paying for them. This is a good thing since there are many ways to get things that people do. But what about those other things? And the first thing that’s a lot different is the amount of goods people can earn. That’s a way to get things that people can earn and pay for.
Marginal utility describes the amount a person cares about the things they own. It’s the amount of things that they “have to do” so they can keep their things. Total utility is the amount of things that they “have to do” so they can keep their things. It’s the difference between a person who is willing to pay to keep their things and a person who is not.
If you’re like most people, you probably think that the stuff that you have to do to keep your things is so much more fun than the stuff that you don’t have to do. But that’s exactly when you make the mistake of thinking that your own utility is the most important part of your life. The more you have to do, the more you will realize how much more enjoyable it is to be doing it, and the more you will want to keep doing it.
Total utility is the sum of all that you get from doing a set of things. Like say you work at a store. You spend a lot of time there, and you have to do a lot of things. If you were to just give up all those things that you have to do, you would in fact be doing them less well, because you would not be taking out as much energy.