   Chapter 20, Problem 1QP

Chapter
Section
Textbook Problem

Give a numerical example that illustrates total utility rising as marginal utility declines.

To determine

Explain the relation between the total utility and the marginal utility.

Explanation

The total utility is the overall satisfaction accrued by a consumer from all the units of a commodity, whereas the marginal utility is the additional utility accrued from consuming an additional unit. Therefore, as total utility increases, the marginal utility will decline. For example, Person E accrued \$2 of utility from eating one banana and \$1 of utility from eating the second banana. Hence, as the quantity increases from 1 banana to 2 bananas, the total utility increases from \$2 to \$3 (2+1), where the marginal utility is \$1 (3-2). Hence, as the total utility rises, the marginal utility declines.

Concept

Total utility: The total utility is defined as the overall satisfaction that a consumer derives from consuming all units of a good or service over a given time period.

Marginal utility: Marginal utility is the additional utility derived from consuming one more unit of a good or service.

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