Chapter 20, Problem 20.1LO

To determine

Distinguish between the total and marginal utility of consumption and establish that why the marginal utility eventually falls.

Introduction:

Marginal Utility- It is the utility derived from the consumption of one more or an additional unit of the good being consumed. It is calculated as the difference between the utility derived from the consumption of (n+1) the unit and that derived from the nth unit.

$MU=T{U}_{n+1}-T{U}_n$

Total Utility- TU above stands for the total utility. It is the aggregate satisfaction that a consumer derives from the total consumption of the good being consumed. It is the sum of the marginal utilities of the individual units consumed.

Utils- The units in which utility is measure is called a util.

Explanation of Solution

Let us assume a hypothetical utility table that shows the utils of satisfaction that a consumer derives from the consumption of water.

Glasses of Water	Total Utility	Marginal Utility(utils)
1	10	10
2	22 (10 +12)	12
3	37(22+15)	15
4	50(37 +13)	13
5	60(50+10)	10
6	66(60+6)	6
7	66(66+0)	0
8	58(66-8)	-8

It can be seen from the table above that as the consumer consumes the first glass of water the utility derived is 10 utils. It increases consecutively to 12 and 15 in the next two glasses. This is so because the consumer is too thirsty and tired and needs the water. The first glass triggers his thirst. That is the reason the next to glasses yield increasing level of satisfactionto him. However, once he has had the third glass he begins to feel less thirsty. It can be seen that every additional glass of water gives him less satisfaction than the previous glass. The seventh glass gives him no satisfaction at all as he is not thirsty anymore. The MU of the seventh glass is 0. If he consumes another glass of water, the water gives him dissatisfaction and discomfort instead of giving him satisfaction. The MU derived from the eighth glass is -8 reducing the total utility to 58.