Total Utility

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.

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.

Investment dictionary. . 2012.

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