Total and Marginal Utility

Suppose you have a piece of your favourite food, like a slice of pizza or a delicious Whopper from Burger King. You've already eaten 5 slices or 3 Whoppers by now. Now, imagine having another slice of pizza or another Whopper. Would it taste just as good as the previous ones? Maybe not. You might still enjoy it, but maybe not as much. Your stomach is already full, how'd you even stuff further? Or eventually you might feel full or even sick of it, and the enjoyment you get from each slice or bite will decrease. That's because you've already satisfied your hunger and don't need any more food. This is what we call "marginal utility."

Total utility is the satisfaction you get from anything, and Marginal utility is the concept of the extra satisfaction or pleasure that we get from consuming one more unit of anything. Not necessarily it has to be food, it can be any material!

The graph of marginal utility is usually downward sloping, as the quantity of a good consumed increases, the marginal utility derived from each additional unit consumed decreases. This is because as a person consumes more of a good or service, the marginal benefit derived from each additional unit decreases.

Our individual demand also gets affected by both total and marginal utility. It plays a key role in determining the level of demand for a good or service. In microeconomics, the law of demand states that as the price of a good or service increases, the quantity demanded by consumers decreases, all else being equal. As a consumer purchases consecutive units, the marginal utility they derive from each additional unit tends to decrease, and eventually reaches a point where it becomes negative. This means that the consumer is no longer willing to pay the same amount for that additional unit, since the incremental satisfaction they receive from that unit is less than the cost.

Thus, as the price of a good increases, the consumer will tend to reduce the quantity demanded so that the marginal benefit (or satisfaction) they receive for each additional unit consumed is equal to or greater than the marginal cost (or price) they pay for that unit. In other words, consumers will continue to purchase a good up to the point where its marginal utility equals its price, and will not purchase any more beyond that point. If you have a desktop and MacBook, you won't need another desktop or laptop would you? That'd cost you much currency, and you won't need those additional screens either even if you multitask.

This entire concept can be shown from this graph below. Let's suppose it's about carrots for your ease of understanding. Also the numbers of utilities are purely arbitrary, there's no definite measure of how we feel or perceive for anything, hence we use arbitrary numbers to just show the ranking.

In this example, the total utility increases as more units of the good are consumed until it reaches a maximum 3 units. After this point, the total utility remains constant and then decreases even when an additional unit is consumed, indicating that the consumer has reached maximum satisfaction with the carrots. The marginal utility decreases as more units are consumed, reflecting the diminishing marginal utility discussed earlier.